Page 1 TVNZ Annual Report FY2014 Page 2 TVNZ Annual Report FY2014
Engaging the hearts and minds of New Zealanders with the most watched content Page 3 TVNZ Annual Report FY2014
Contents
Highlights 4
Chairman's Introduction 5
Chief Executive’s Overview 6
Financial Performance 12
TVNZ in Society 16
Performance and Engagement Measures 19
Financial Statements 26
Corporate Governance 68
Directors' Profiles 70
Main Locations 71
Cover: Seven Sharp’s Toni Street and Mike Hosking
Opposite: New Zealand’s Got Talent
This page: Shortland Street
Back cover: The Big Bang Theory (top left), My Kitchen Rules (top right), Broadchurch (bottom) Page 4 TVNZ Annual Report FY2014
Highlights
INCREASE IN 30% ONLINE ADVERTISING $360.6m REVENUE 25% DECREASE IN OPERATING 3% EXPENSES
PROFIT INCREASE TOTAL REVENUE
INCREASE IN 78% TVNZ ONDEMAND No. 1 NZ's STREAMS Top 20 INCREASE IN ONENEWS.CO.NZ 63% VIDEO STREAMS NEW ZEALAND SHOWS AIRED ON NETWORK TVNZ CHANNELS Page 5 TVNZ Annual Report FY2014
Chairman's Introduction
This financial year TVNZ achieved the earnings result forecast in our Statement of Intent and comfortably exceeded the target for shareholders’ Return on Equity.
Net Profit after Tax was $18.1m, an increase of $3.7m or 25% on the previous year, representing solid growth during a period of transition.
With a Return on Equity of 10.8% – against a target of 10.1% - it is pleasing to note consistent growth over the past four years in these two elements of our financial performance.
Our balance sheet reflects a number of significant changes this year, of which the most public is the divestment of land and surplus buildings at our Auckland site. The proceeds will help finance the comprehensive refurbishment of our main building so that TVNZ has the technology and the environment required to succeed, well into the next quarter century.
I note also our decision to exit our shareholdings in both Hybrid Television and Igloo. By half year we had written down the carrying value of both, and could find no further additional benefit to the company in continuing to contribute as shareholders.
Shortly after the close of the year we completed an agreement to sell the TVNZ Archive to the Crown, which allows clearer focus on the core business for TVNZ, while ensuring the collection is available for current and future generations to use and enjoy.
During the year we made significant cost savings, largely due to reduced transmission costs as a result of the nation’s switch from analogue to digital broadcasting. We also reduced labour costs by 1.7% as part of our continuing drive to become a leaner and more efficient business.
In programming terms we finished the year on a particularly high note, with a 45.5% share of peak audiences and all 20 of the top 20 most watched shows.
While television revenue was lower than expected in the second half of the year, prioritised use of our resources and careful cost reduction and management has offset that impact.
Online video consumption experienced exponential growth and delivered strong double digit growth in revenue.
My thanks to everyone in the company who contributed to the FY2014 result.
We begin FY2015 with enthusiasm and a clear sense of direction.
Wayne Walden Page 6 TVNZ Annual Report FY2014
Chief Executive's Overview
It has been a transformational year for TVNZ. Our TV business is in great shape thanks to the continued strong performance of TV ONE and TV2 and we live in an ‘always on’ world where more and more Kiwis are watching their favourite shows online and multi-screening is commonplace.
As much as the media world is changing, one thing that hasn’t It’s been a year of significant developments across the business. changed is New Zealanders’ love of TV shows. Kiwis watch on Here’s how we delivered on our Statement of Intent priorities. average three hours of TV per day and TVNZ content is at the heart of this viewing. Create and source the most As a video content business, TVNZ’s number one priority is to 1 compelling content create and source the most compelling content for New Zealand viewers to enjoy. We’re all about delivering great shows when, where and how our viewers want it – on air, online and on the go. TVNZ aired all 20 of the top 20 most watched shows in FY2014. Our Quite simply, our content is the engine that drives our business, slate of top quality local and international drama, comedy, news our financial results and our future growth. and factual programming delivered a consistently strong on screen performance with nearly one in two viewers choosing to spend The global growth in video consumption over the last few years primetime with TV ONE or TV2. has been phenomenal. Never before has so much television been watched – it’s just that now it’s on screens of all sorts and sizes. Overall New Zealand’s Got Talent was New Zealand’s most At TVNZ we’re focused on maximising our share of TV audiences watched show, ONE News the most watched news, and Sunday and accelerating the online consumption of our content. You the most watched current affairs programme. Seven Sharp has only have to look at the way viewers seized on our multi-screen started its second year strongly and is now starting to challenge coverage of the America’s Cup and FIFA World Cup to see the Shortland Street’s stranglehold on the 7pm timeslot. Shortland enormous public appetite for integrated on air and online offerings. Street remained our most watched local drama, and with 8.8 million streams it was the most popular show on TVNZ OnDemand 2014 was a positive year for TVNZ, financially and operationally in FY2014. – reflecting the progress we’re making as a company and our standing with Kiwi viewers and advertisers. TVNZ continued to secure and deliver an unrivalled depth of first run international content across our platforms. And with NZ on Air’s Our share of advertising revenue was ahead of our share of support, TVNZ continued to deliver more local content and launch audiences and this combined with disciplined cost control in more first run local shows than any other broadcaster – including non-programming areas, saw profits rise by 25% year on year. new series like Step Dave and old faithfuls like Country Calendar. TV revenue was slightly down year on year and was partially With advertisers looking for greater integration opportunities to offset by double digit growth in digital media revenues. showcase their brands, we selectively entered into commercial partnerships to support the making of popular local shows MasterChef New Zealand and Mitre 10 Dream Home. TVNZ OnDemand is the catalyst for our digital growth and a step change in video streams resulted in online advertising revenue increasing 30% for the year. Digital revenue is currently a modest component of the total revenue, but it’s a major driver Expand content accessibility of future growth. 2
These results have fuelled our confidence to invest in the Our content now follows viewers from location to location; future of the business and enable TVNZ to stay at the forefront from their TV screens to their desktops, their smartphones of changing consumer behaviour and trends. to their tablets. Our 2013 America’s Cup coverage optimised this experience for our audiences. The results were telling. At its height, TV viewing peaked at 1.2 million on TV ONE and live streaming topped a quarter of a million people on onenews.co.nz. Page 7 TVNZ Annual Report FY2014
“Our slate of top quality local and international drama, comedy, news and factual programming delivered a consistently strong on screen performance.”
KEVIN KENRICK, TVNZ CHIEF EXECUTIVE Page 8 TVNZ Annual Report FY2014
The country’s favourite video on demand service, TVNZ OnDemand clocked up a record 54 million streams in FY2014 – averaging over Partner for pay to view opportunities one million streams per week. Available on New Zealand’s widest range of screens and offering more fast-tracked programmes than 4 ever before, TVNZ OnDemand posted an impressive 78% increase in streams. TVNZ produces Heartland and Kidzone24 linear pay channels and we materially strengthened Kidzone’s audience performance ONE News has been building on its on air leadership and upped its during FY2014. game online. We delivered more news stories, faster on onenews. co.nz, which resulted in a 63% jump in video streams year on year. TVNZ relinquished its stake in both Hybrid Television Services and Igloo during the year and is now more focused on TVNZ We began work on a series of major investments to upgrade our OnDemand as a platform for launching new services in the future. technology capabilities and work is on track to launch an enhanced We continue to talk to a number of external market players to TVNZ OnDemand and onenews.co.nz site in FY2015. explore potential future opportunities to distribute our content.
Leverage superior reach to enhance Align cost structures to market reality 3 advertiser opportunities 5
TVNZ captures nearly two out of every three dollars spent on We reduced non programme costs by 12%. As part of a tighter television in the market. Our total TV revenue was $306.8 million, focus on our core business, TVNZ divested surplus land and slightly down on last year. Online advertising revenue, at $12.9 buildings during the year, closed the loss making TVNZ U channel, million, was up 30%. Our results highlight the strong appetite of transferred Access Services to ABLE – a new independent advertisers to leverage video content opportunities to connect captioning and audio description facility, and sold the TVNZ with audiences. It reinforces TVNZ’s commitment to grow our Archive to the Crown shortly after the financial year end. on air and online audiences and drive integrated advertising opportunities for our commercial partners. The exit of non-core assets has freed up capital to invest in technology infrastructure to fast track online growth, and to refurbish our Auckland building to meet our future accommodation needs in one central location. We also opened a new building for our Christchurch team, who had been working from temporary accommodation since the February 2011 earthquake. Page 9 TVNZ Annual Report FY2014
The last year has been a time of simplifying the business to more tightly focus on our core on air and online initiatives. We have delivered growth in operational earnings during this period of transformation and have generated positive momentum for the year ahead.
With the refurbishment project underway on our Auckland site and a major multimedia technology investment now moving at pace, TVNZ has a once-in-a-generation opportunity to create the workplace that will take TVNZ into the future.
These are exciting times for TVNZ. We have a team of smart capable people who are energised by the challenges and opportunities ahead. We have made significant commitments to invest in the future of the business. Most importantly we have 2.3 million New Zealanders who watch our content every day and a significant number of New Zealand’s leading businesses who advertise with TVNZ to connect with these viewers. Our success is reliant on viewers and advertisers and we’ll continue to work hard to retain and grow their support in the year ahead.
Kevin Kenrick
We selectively entered into commercial partnerships to support the making of MasterChef New Zealand Page 12 TVNZ Annual Report FY2014
Financial Performance
TVNZ has reported a net profit after tax of $18.1 million, a 25% increase on the prior year result of $14.4 million.
Total revenue for the year declined slightly by 0.4% to $360.6 TVNZ recognised $2.1 million share (34%) of losses relating to million from the prior year result of $362.1 million. The gains on sale the start-up losses of Igloo Limited and impaired the balance of of property, plant and equipment offset a reduction in operating the investment in Igloo of $4.3 million. At 30 June 2014, TVNZ revenue. sold its shareholding in Igloo to Sky Television Network Ltd and ceased to hold any interest in Igloo. This followed a review of the The decline in operating revenue to $336.9 million was primarily performance of the Igloo business and uncertainty when it would driven by a $4.8 million (1.5%) decline in advertising revenue to be a sustainable stand-alone business. $306.8 million and a $6.3 million decline in other trading revenue associated with event broadcast linking services. At 30 June 2014, TVNZ also sold its 33% interest in Hybrid Television Services (ANZ) Pty Limited, the Australasian distributor The decline in television advertising and other trading revenues of TiVo, to Seven West Media (Pty) Ltd. was partially offset by a $3.0 million (30%) growth in digital media advertising revenue. This revenue growth follows exponential The net profit after tax of $18.1 million is an increase of $3.7 growth in viewership of programmes on TVNZ OnDemand. million (25%) on the prior year and represents a 10.8% return on Shareholders’ Equity. We have maintained the three year trend in year on year reduction of operating expenditure with a $10.2 million (3.0%) reduction for During the year the Board approved $70 million of capital the year. Non-programming costs reduced from $140.8 million to expenditure investment in the refresh of technology infrastructure $123.7 million, a reduction of $17.1 million (12.1%). During the year and the refurbishment of 100 Victoria Street West to enable TVNZ we completed the sale of surplus land and buildings, outsourced to build and maintain sustainable growth. These projects are programme captioning and concluded negotiations for the sale of forecast to be completed over the next two years. the TVNZ Archive to the Crown, which settled on 1 August 2014 – consistent with our programme of work to exit non-core activities No dividend was declared following the decision by Shareholding and reduce non-programming operational expenditure. Ministers to forego future dividends equivalent to the net cost of the refurbishment of 100 Victoria Street West. Underlying earnings of $35.0 million increased by $8.7 million (33%) on the prior year. Excluding the gains on sale of property, plant and equipment, underlying earnings of $27.2 million increased $1.9 million (7.5%).
FINANCIAL MEASURES FY2014 FY2013 Measurement Actual Target Actual Profitability Return on average equity 10.8% 10.1% 9.2% EBITDA/core television advertising revenue 16.4% 14.4% 13.9% Gearing Net interest bearing debt/net interest bearing debt plus equity 0.0% Less than 40% 0.0% Financial stability Total equity/total assets 76.8% More than 40% 72.7% Interest cover EBITDA/interest expense 202 times More than 4 times 39 times Page 13 TVNZ Annual Report FY2014
PERFORMANCE MEASURES The following set of measures demonstrate efficiency and productivity at TVNZ.
Return on programme investment Programme yield is higher than budget and the prior year due to the decline in aggregate programme revenue.
FY2014 FY2014 FY2013 Measurement Actual Budget Actual $000 $000 $000 Aggregate programme revenue 1 318,303 334,304 326,303
Programme amortisation cost 201,947 201,825 195,005
% programme cost of revenue 63.4% 60.4% 59.8%
Note 1: Aggregate programme revenue includes advertising and sponsorship revenue, programme funding and licensing revenue.
Revenue productivity – employees Revenue per employee was higher than budget and the prior year. The reduction in FTE numbers has more than offset the below budget revenue performance.
FY2014 FY2014 FY2013 Measurement Actual Budget Actual $000 $000 $000 Total revenue (excl. gain on sale PPE) 352,765 357,238 361,082 Employees (FTE) 833.4 855.3 913.0 Revenue per FTE 423.3 417.7 395.5
Business efficiency – non-programme costs Non-programme costs as a percentage of revenue are lower than budget and the prior year reflecting the ongoing focus on reducing non-core activities and costs.
FY2014 FY2014 FY2013 Measurement Actual Budget Actual $000 $000 $000 Total revenue 352,765 357,238 361,082 Total non-programme costs 123,656 126,413 140,820 % non-programme costs to revenue 35.1% 35.4% 39.0% Page 14 TVNZ Annual Report FY2014 Page 15 TVNZ Annual Report FY2014
Shortland Street remained our most watched local drama, and with 8.8 million streams it was the most popular show on TVNZ OnDemand in FY2014 Page 16 TVNZ Annual Report FY2014
TVNZ in Society
TVNZ’s unique place in the homes of the nation brings with it a special responsibility to set an example as a good corporate citizen. Special attention is given to environmental factors and high standards as an employer.
ENVIRONMENTAL SUSTAINABILITY TVNZ remains committed to reducing its impact on the environment.
Vehicle Fleet Electricity Usage Air Travel General Waste to Landfill During the year a further The drive to reduce The total number of The amount of waste nine petrol driven vehicles electricity costs has kilometres travelled by transferred to landfill were replaced by diesel continued during TVNZ staff in FY2014 was increased from 84.2 tonnes powered alternatives FY2014. Savings in smart reduced by 9% over the to 86.1 tonnes in FY2014. as vehicle leases were energy usage are a key previous year. This was largely the result renewed. This programme factor in the design for of removing obsolete The increasing use of is reducing TVNZ’s carbon the refurbishment of the equipment as part of the newsgathering technology emissions as well as costs. Television Centre building refurbishment of the has been a key factor in a In total 91% of TVNZ vehicles in Auckland. Auckland Television reduction of domestic travel, are now diesel powered. Centre building. Total electricity partially offset by increases consumption for FY2014 in travel on international and Our focus remains on was 9,062,576 kWhrs. This trans Tasman routes. recycling and reducing represents a reduction the amount of waste of 1.2% compared to the transferred to landfill. previous year.
COST SAVINGS TVNZ is an active participant in the All of Government (AoG) Procurement initiatives relating to:
• Vehicles • Multifunctional devices • Desktops and laptops • Mobile voice and data • External legal services • Air travel • Travel management • Office consumables • External recruitment • Electricity supply • Energy management
We will continue our participation in areas that are identified as having the potential to provide cost savings for TVNZ. Page 17 TVNZ Annual Report FY2014
PEOPLE CAPABILITY AND CAPACITY profile TVNZ as an EEO employer To successfully compete and evolve within a complex and dynamic survey applicants on nationality, ethnicity, gender, industry, TVNZ continues to focus on attracting and developing age, accessibility. outstanding leaders and highly engaged, capable people committed provide an equitable process for applicants and give to delivering outstanding results. hiring managers a fair selection framework This year we have worked on: • We introduced a new induction framework that gives all new employees a consistent and fair experience. proactively identifying and developing our key leadership talent providing appropriate learning and development 3. Employee Development and Promotion opportunities and events across the organisation • A new performance management tool has been encouraging and supporting employee-led initiatives to implemented to manage a fair and transparent grow engagement performance review framework. refining a transparent performance review process which • We have developed a talent management framework. encourages regular two way feedback and coaching • A range of training and development courses was taking an interest-based bargaining approach to successfully attended by staff. renegotiating the collective employment agreement 4. Flexibility and Work Design reviewing salary bands against the external market and ensuring all employees are fairly remunerated • Flexible work arrangements include part-time, job share, working from home, remote access and casual employment. implementing a robust health and safety plan including the ongoing training of directors and managers • A more flexible and dynamic work environment is being designed for TVNZ’s refurbished Auckland centre. designing a future-proofed, contemporary, open plan work environment • The Christchurch office has been re-established in a new, fit-for-purpose open plan building. TVNZ was the winner of the 2014 Randstad Award for New Zealand’s most attractive employer. 5. Remuneration, Recognition and Conditions • A review was conducted of TVNZ pay bands and some GOOD EMPLOYER changes recommended based on the findings. TVNZ has adopted the guidelines of the Human Rights Commission • Individual, peer and team recognition is encouraged in monitoring seven aspects of our engagement with our and practised. employees. 6. Harassment and Bullying Prevention 1. Leadership, Accountability and Culture • Our policies and practices include: • Provided coaching for senior people in authentic leadership and equitable and transparent management of others. - Equal Employment Opportunity policy • TVNZ’s Marae, re-established in temporary - Harassment policy accommodation, is supported and functional during - Social Media Policy building refurbishment. • Cultural diversity is celebrated with special events 7. Safe and Healthy Environment like Samoan Language week. We continue to invest heavily in Health and Safety. • Multiple employee-led initiatives are implemented to enhance employee engagement. • A TVNZ Health and Safety manager has been contracted during the re-fit of the Auckland television centre. 2. Recruitment, Selection and Induction • Specialist Health and Safety training is provided for • We introduced a new e-recruitment tool and careers required roles. website which allows us to: • We provide an Employee Assistance Programme, discounted Southern Cross health insurance and subsidised gym memberships. Page 18 TVNZ Annual Report FY2014
Workforce Profile
EMPLOYEES GENDER AGE
44% 15-24 8% 25-34 28%
35-44 30% 823 56% 45-54 21% 55 and over 13%
GENDER REPRESENTATION FY 2014 % FY 2013 % TENURE Female Female
Less than 1 year 15% 0.6 1-2 years 20% 0.5
0.4 3-4 years 15%
0.3 5-9 years 23%
0.2 10-19 years 14% 0.1 20 years and over 13% 0 Board Executive Business Other Leaders
TOTAL FIXED REMUNERATION (%) SALARY RANGE BY GENDER Female Male
140 8 2 20 120 100 20 80 60 40 29 20 21 0 <40,000 40,000 - 55,000 - 80,000 to 100,000 to >150,000 54,999 79,999 99,999 149,999 <40,000
40,000 - 54,999 ETHNICITY
55,000 - 79,999 80,000 - 99,999 57% 5% 2% 2% 2% 1% 31% 100,000 - 149,999
>150,000 NZ European / Maori Indian Samoan Chinese Other Unspecified European Page 19 TVNZ Annual Report FY2014
Performance and Engagement Measures
TVNZ is the country’s most watched TV network. Every day we join Kiwis in their lunchrooms, lounge rooms, bedrooms and on whatever gadget they carry around.
ON AIR PERFORMANCE Average monthly cumulative audience across all TVNZ channels: 3,852,533 Over 3.8 million people aged 5+ watched a TVNZ channel in an average month during FY2014 – 93% of all New Zealanders. Source: Nielsen TAM, Consolidated (Monthly reach, AP5+) TV ONE, TV2, TV ONE Plus 1, TV2+1 and TVNZ Heartland
ONLINE PERFORMANCE TVNZ.CO.NZ 78% 42% Streams across all devices: Unique browsers: 54,290,197 3,314,408 TVNZ OnDemand recorded over 54 million streams in Average monthly unique browser figures exceeded 3.3 million FY2014 – up 78% year on year. It averaged 4.5 million in FY2014 – up 42% on FY2013. Page impressions increased streams each month. 18% with an average 21 million page impressions per month.
Source: Nielsen Market Intelligence (Desktop, Samsung TV & PS3 Streams), Source: Nielson Net Ratings Omniture (OnDemand mobile streams)
TVNZ ONDEMAND TVNZ ONDEMAND APP Average monthly streams: Downloads: FY2014 FY2013 FY2012 FY2011 Average monthly 4,524,183 2,537,330 1,897,662 1,363,393 stream views 600,000 Year on year 78% 34% 38% 5% % increases NEWS APP FOR IPHONE AND IPAD Source: Nielsen Market Intelligence (desktop, Samsung TV & PS3 streams), Downloads: Omniture (OnDemand mobile streams) 350,000 Source: Apple iTunes, Samsung App Store, Google Play Store TVNZ OnDemand recorded over 54 million streams in FY2014 – up 78% year on year
Page 22 TVNZ Annual Report FY2014
COMPLIANCE WITH STANDARDS AND CODES
Through the process of Formal Complaints, our In the period under review, TVNZ answered 711 formal viewers play an influential part in the maintenance complaints to the BSA. of broadcasting standards. • 81 fewer than in the previous year. The Broadcasting Standards Authority (BSA) is responsible • Of these 711 complaints, 27 were upheld by the TVNZ under the Broadcasting Act 1989 for administering standards Complaints Committee. in programming and presentation of programming. All formal complaints must be first made in writing to TVNZ (with the In the same period TVNZ answered 3 complaints to OMSA. exception of allegations of privacy). Complainants may refer their complaint to the BSA if they are not satisfied with the outcome • Two complaints were found to have no ground to proceed; of the TVNZ process. one was settled.
Unique online News and Current Affairs material is now regulated by OMSA (the Online Media Standards Authority). Complaints are made directly to OMSA; there is no referral process.
FORMAL COMPLAINTS In FY2014 the BSA handled 46 referrals about TVNZ programming – a decrease of 11 referrals on the previous year (referrals are counted per BSA decision). Of these 2 were upheld by the BSA*.
2011 2012 2013 2014
2,757 complaints 1,155 complaints 792 complaints 711 BSA complaints 1,839 upheld 29 upheld 35 upheld 27 upheld (1,752 for 3 programmes) 3 OMSA complaints 2 had no grounds to proceed; 1 settled
REFERRALS
2011 2012 2013 2014
83 referred 59 referred 57 referred 46 referred 12 upheld 7 upheld 5 upheld 2 upheld*
* 12 referrals yet to be determined by the BSA Page 23 TVNZ Annual Report FY2014
AWARDS AND RECOGNITION
New Zealand’s most attractive employer TVNZ was named New Zealand’s Most Attractive Employer at the 2014 Randstad Awards. The supreme winner is chosen based on feedback from 7000 job-seekers. Both young and mature workers rated the organisation as a highly attractive place to work because of its pleasant working atmosphere, flexible working opportunities and interesting job content.
Best on the Box In the annual TV Guide Best on the Box Awards, TVNZ programmes and personalities scooped an impressive 12 awards. The awards are determined by public vote. Perennial favourite Shortland Street won best drama, while ONE News secured the Best News category and TVNZ’s America’s Cup coverage won for Favourite Special Event Television of 2014.
Best entertainment site TVNZ OnDemand won Best Entertainment Site at the 2014 NetGuide Awards, as voted by members of the public.
Emmy nomination The Golden Hour, a Kiwi documentary commissioned by TVNZ about New Zealand Olympians Peter Snell and Murray Halberg and their coach Arthur Lydiard, was nominated for Best Documentary at the International Emmy Awards.
Promax golds The PromaxBDA Global Excellence Awards recognise the best television marketing campaigns from around the world. TVNZ’s in house creative team Blacksand won gold this year in the Best Promotional Interactive Applications category for a Shortland Street campaign and bronze in the Best News/Information Programme category for the Seven Sharp launch. In the New Zealand Promax competition, TVNZ collected a total of seven gold awards across a range of categories; three for Shortland Street campaign work. Page 24 TVNZ Annual Report FY2014
All 20 of New Zealand’s 20 most watched shows for the year aired on TVNZ channels.
TOP 20 PROGRAMMES WATCHED BY ALL PEOPLE 5+
Rank Programme Channel Rating % Average Audience 1 New Zealand's Got Talent TV ONE* 17.0 700,300 2 ONE News TV ONE* 15.5 644,100 3 Dynamo Magician Impossible TV ONE* 15.1 625,000 4 Highway Cops TV ONE* 15.1 630,200 5 Sunday TV ONE* 15.0 623,200 6 Fair Go TV ONE* 14.1 582,200 7 Dog Squad TV ONE* 13.9 573,900 8 Hyundai Country Calendar TV ONE* 13.9 577,100 9 The World's Oddest Animal Couples TV ONE* 13.8 576,300 10 Border Security TV ONE* 13.4 555,800 11 Life Flight TV ONE* 13.3 549,700 12 Women In Blue TV ONE* 13.3 553,800 13 Broadchurch TV ONE* 13.3 553,600 14 Shortland Street TV2* 12.8 529,400 15 The Force TV ONE* 12.7 530,100 16 Rapid Response TV ONE* 12.5 522,500 17 Water Patrol TV ONE* 12.5 520,800 18 Highway Patrol TV2* 12.4 516,900 19 MasterChef New Zealand TV ONE* 12.4 516,500 20 Topp Country TV ONE* 12.3 513,000
TOP 20 PROGRAMMES IN TV2’S COMMERCIAL DEMOGRAPHIC, ALL PEOPLE 18-49
Rank Programme Channel Rating % Average Audience 1 My Kitchen Rules TV2* 16.1 309,200 2 The Big Bang Theory TV2* 14.9 285,100 3 Shortland Street TV2* 14.8 283,500 4 The Block NZ TV3* 13.4 255,800 5 2 Broke Girls TV2* 12.7 242,600 6 Motorway Patrol TV2* 12.6 240,300 7 Nabbed TV2* 12.5 239,000 8 Highway Patrol TV2* 12.0 231,100 9 Police Ten 7 TV2* 11.7 224,100 10 Dynamo Magician Impossible TV ONE* 11.7 222,900 11 The X Factor (NZ) TV3* 11.4 217,000 12 Mom TV2* 11.0 209,800 13 Mitre 10 Dream Home TV2* 10.7 204,800 14 Code 1 TV2* 10.7 203,600 15 7 Days TV3* 10.6 203,200 16 The Smurfs TV2* 10.6 202,300 17 New Zealand's Got Talent TV ONE* 10.5 201,000 18 Trophy Wife TV2* 10.4 199,900 19 The Middle TV2* 10.3 197,600 20 Two and a Half Men TV2* 10.1 192,500 Page 25 TVNZ Annual Report FY2014
TOP 20 PROGRAMMES IN TV ONE’S COMMERCIAL DEMOGRAPHIC, ALL PEOPLE 25-54
Rank Programme Channel Rating % Average Audience 1 My Kitchen Rules TV2* 16.9 313,300 2 The Big Bang Theory TV2* 15.6 288,900 3 Shortland Street TV2* 15.1 278,100 4 The Block NZ TV3* 14.7 269,200 5 2 Broke Girls TV2* 13.0 240,200 6 Dynamo Magician Impossible TV ONE* 12.9 236,600 7 Highway Patrol TV2* 12.9 238,500 8 Motorway Patrol TV2* 12.4 229,800 9 Nabbed TV2* 12.3 229,200 10 New Zealand's Got Talent TV ONE* 12.2 223,000 11 Police Ten 7 TV2* 11.9 218,500 12 The X Factor (NZ) TV3* 11.7 214,200 13 Mom TV2* 11.6 214,300 14 Code 1 TV2* 11.0 202,900 15 7 Days TV3* 10.9 200,800 16 Broadchurch TV ONE* 10.8 199,800 17 MasterChef New Zealand TV ONE* 10.6 195,800 18 Mitre 10 Dream Home TV2* 10.6 193,800 19 The Blacklist TV3* 10.3 191,100 20 Trophy Wife TV2* 10.2 189,800
TV ONE* = TV ONE and TV ONE Plus 1 combined. TV2* = TV2 and TV2+1 combined. TV3* = TV3 and TV3+1 combined. Excludes movies and one off special telecasts Source: Nielsen TAM, Consolidated 1/7/2013 - 30/6/2014
TOP 20 MOST WATCHED PROGRAMMES ON TVNZ ONDEMAND
We’re seeing more Kiwis than ever before watching their favourite programmes online. The country’s market leading video on demand service, TVNZ OnDemand recorded 54 million streams in the last financial year.
Rank Programme Streams Rank Programme Streams 1 Shortland Street 8,814,445 11 Neighbours 785,927 2 Home and Away 4,336,689 12 Scandal 723,267 3 Coronation Street 2,089,736 13 The 100 709,894 4 Peppa Pig 1,597,273 14 ONE News 671,880 5 The Vampire Diaries 1,096,656 15 The Carrie Diaries 649,693 6 The Mentalist 1,056,221 16 The Middle 644,984 7 The Originals 943,407 17 Devious Maids 637,233 8 The Big Bang Theory 915,838 18 Revenge 630,152 9 Grey’s Anatomy 845,865 19 Person of Interest 590,613 10 Arrow 827,129 20 My Kitchen Rules 552,724
Source: Omniture (Brightcove Analytics used for desktop streams in Apr-May 2014) Page 26 TVNZ Annual Report FY2014
FINANCIAL STATEMENTS
27 Statement of Responsibility 33 Notes to the Financial Statements
28 Income Statement 60 Statement of Service Performance
Statement of Comprehensive Report of the Auditor-General 29 Income 62
Statement of Changes in Five Year Trend Statement 30 Equity 64
Statement of Financial Additional Information 31 Position 65
32 Statement of Cash Flows Page 27 TVNZ Annual Report FY2014
STATEMENT OF RESPONSIBILITY For the year ended 30 June 2014
The Board and management of Television New Zealand Limited are responsible for:
• The preparation of these financial statements and the judgements used in them.
• Establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.
In the opinion of the Board and management these financial statements fairly reflect the financial position of Television New Zealand Limited as at 30 June 2014 and its financial performance and cash flows for the year ended on that date.
The Directors have pleasure in presenting the following financial statements for the year ended 30 June 2014.
For and on behalf of the Board of Directors,
Wayne Walden Alison Gerry Chairman Chair, Audit and Risk Committee
30 September 2014 Page 28 TVNZ Annual Report FY2014
INCOME STATEMENT For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 Notes $000 $000 $000 $000
Revenue and income Operating revenue 4 336,887 344,964 336,887 344,964 Government funding 18a 15,020 16,060 15,020 16,060 Interest income 858 58 858 58 Gain on sale of property, plant and equipment 7,820 1,028 7,820 1,028 360,585 362,110 360,585 362,110
Expenses Programme amortisation 12 (201,947) (195,005) (201,947) (195,005) Employee benefits 5 (57,916) (60,821) (57,916) (60,821) Depreciation and amortisation 5 (15,409) (16,991) (15,409) (16,991) Transmission (10,535) (19,798) (10,535) (19,798) Marketing (8,580) (9,841) (8,580) (9,841) Other (31,216) (33,369) (31,216) (33,369) (325,603) (335,825) (325,603) (335,825)
Earnings before interest expense, impairments, remediation 34,982 26,285 34,982 26,285 expenses, financial instruments, associates and tax
Interest expense (249) (1,118) (249) (1,118) Asset impairment and remediation expense reversal 6 (3,188) 1,074 (3,188) 1,074 Financial instruments/foreign currency (losses)/gains 7 (167) 394 (167) 394 Share of results of associates 14c (2,055) (4,969) 0 0 Impairment of associate 14c (4,287) 0 (6,685) (5,876)
Profit before income tax 25,036 21,666 24,693 20,759
Income tax expense 8 (6,925) (7,226) (6,925) (7,226)
Profit for the year 18,111 14,440 17,768 13,533
The accompanying notes form part of these financial statements. Page 29 TVNZ Annual Report FY2014
STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
Profit for the year 18,111 14,440 17,768 13,533
Other comprehensive income/(loss) reclassifiable to profit or loss in subsequent periods Net changes in the fair value of cash flow hedges 0 365 0 365 Income tax on other comprehensive income 0 (102) 0 (102) Share of results of associate cash flow hedge (29) 29 0 0 Other comprehensive income/(loss) for the year net of income tax (29) 292 0 263
Total comprehensive income for the year 18,082 14,732 17,768 13,796
The accompanying notes form part of these financial statements. Page 30 TVNZ Annual Report FY2014
STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014
Share Cash flow Retained capital hedge reserve earnings Total $000 $000 $000 $000
Group At 1 July 2013 140,000 29 18,051 158,080 Profit/(loss) for the year 0 0 18,111 18,111 Other comprehensive income net of income tax 0 (29) 0 (29) Total comprehensive income/(loss) for the year 0 (29) 18,111 18,082
Equity transactions Dividend paid in the year 0 0 0 0 At 30 June 2014 140,000 0 36,162 176,162
At 1 July 2012 140,000 (263) 14,898 154,635 Profit/(loss) for the year 0 0 14,440 14,440 Other comprehensive income net of income tax 0 292 0 292 Total comprehensive income/(loss) for the year 0 292 14,440 14,732
Equity transactions Dividend paid in the year 0 0 (11,287) (11,287) At 30 June 2013 140,000 29 18,051 158,080
Company At 1 July 2013 140,000 0 18,394 158,394 Profit/(loss) for the year 0 0 17,768 17,768 Other comprehensive income net of income tax 0 0 0 0 Total comprehensive income/(loss) for the year 0 0 17,768 17,768
Equity transactions Dividend paid in the year 0 0 0 0 At 30 June 2014 140,000 0 36,162 176,162
At 1 July 2012 140,000 (263) 16,148 155,885 Profit/(loss) for the year 0 0 13,533 13,533 Other comprehensive income net of income tax 0 263 0 263 Total comprehensive income/(loss) for the year 0 263 13,533 13,796
Equity transactions Dividend paid in the year 0 0 (11,287) (11,287) At 30 June 2013 140,000 0 18,394 158,394
The accompanying notes form part of these financial statements. Page 31 TVNZ Annual Report FY2014
STATEMENT OF FINANCIAL POSITION As at 30 June 2014
Group Company 2014 2013 2014 2013 Notes $000 $000 $000 $000
ASSETS Current assets Cash and cash equivalents 9 48,715 6,385 48,715 6,385 Trade and other receivables 10 53,986 68,206 53,986 68,206 Programme rights - intangible assets 12 44,612 44,439 44,612 44,439 Inventories 95 102 95 102 Derivative financial instruments 20 1,453 978 1,453 978 Total current assets 148,861 120,110 148,861 120,110
Property, plant and equipment held for sale 11 3,931 0 3,931 0
Non-current assets Property, plant and equipment 11 57,949 74,615 57,949 74,615 Other intangible assets 12 17,723 15,113 17,723 15,113 Deferred tax asset 8 730 1,261 730 1,261 Derivative financial instruments 20 237 197 237 197 Investment in associate 14 0 6,060 0 6,374 Other investments 0 42 0 42 Total non-current assets 76,639 97,288 76,639 97,602 Total assets 229,431 217,398 229,431 217,712
LIABILITIES Current liabilities Trade and other payables 17 47,659 48,082 47,659 48,082 Deferred income 18 3,272 6,367 3,272 6,367 Derivative financial instruments 20 10 910 10 910 Provisions 19 1,039 1,915 1,039 1,915 Total current liabilities 51,980 57,274 51,980 57,274
Non-current liabilities Employee entitlements 17 1,283 1,541 1,283 1,541 Derivative financial instruments 20 6 0 6 0 Provisions 19 0 503 0 503 Total non-current liabilities 1,289 2,044 1,289 2,044
Equity Share capital 22 140,000 140,000 140,000 140,000 Cash flow hedge reserves 22 0 29 0 0 Retained earnings 36,162 18,051 36,162 18,394 Total equity 176,162 158,080 176,162 158,394 Total equity and liabilities 229,431 217,398 229,431 217,712
The accompanying notes form part of these financial statements. For and on behalf of the Board, who authorised the issue of these financial statements on 30 September 2014,
Wayne Walden Alison Gerry Chairman Chair, Audit and Risk Committee Page 32 TVNZ Annual Report FY2014
STATEMENT OF CASH FLOWS For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 Notes $000 $000 $000 $000
Cash flows from/(used in) operating activities Receipts from customers 338,109 337,774 338,109 337,774 Receipt of government grants 16,673 14,560 16,673 14,560 Interest received 753 58 753 58
Payments to suppliers and employees (304,621) (325,046) (304,621) (325,046) Interest paid (249) (1,121) (249) (1,121) Income tax paid (6,348) (8,743) (6,348) (8,743) Net cash flows from/(used in) operating activities 23 44,317 17,482 44,317 17,482
Cash flows from/(used in) investing activities Proceeds from sale of property, plant and equipment 16,171 7,321 16,171 7,321 Proceeds from insurance claim 0 4,200 0 4,200 Purchase of property, plant and equipment (8,482) (4,037) (8,482) (4,037) Purchase of intangibles (8,340) (1,955) (8,340) (1,955) Advances to associates (1,317) (714) (1,317) (714) Net cash flows from/(used in) investing activities (1,968) 4,815 (1,968) 4,815
Cash flows from/(used in) financing activities Repayment of borrowings 0 (10,000) 0 (10,000) Dividends paid 0 (11,287) 0 (11,287) Net cash flows from/(used in) financing activities 0 (21,287) 0 (21,287)
Net increase/(decrease) in cash and cash equivalents 42,349 1,010 42,349 1,010 Net foreign exchange differences (19) (1 ) (19) (1 )
Cash and cash equivalents at the beginning of the year 6,385 5,376 6,385 5,376 Cash and cash equivalents at the end of the year 9 48,715 6,385 48,715 6,385
The accompanying notes form part of these financial statements. Page 33 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2014
1. Corporate information Television New Zealand Limited (the “Company”) and its subsidiaries (the “Group’) operate as a multi channel television and digital media broadcasting and production company in New Zealand.
The Company is a limited liability company incorporated in New Zealand under the Companies Act 1993 and is wholly owned by the Crown. The Company is bound by the requirements of the Television New Zealand Act 2003. The Crown does not guarantee the liabilities of Television New Zealand Limited in any way.
These consolidated financial statements were approved for issue by the Board of Directors on 30 September 2014.
2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. a) Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand (NZ GAAP) and the requirements of the Television New Zealand Act 2003, Financial Reporting Act 1993 and the Companies Act 1993. For the purposes of complying with NZ GAAP the entity is a for-profit entity. The financial statements have been prepared on a historical cost basis except for derivative financial instruments that have been measured at fair value, and assets and liabilities that are designated in a fair value hedge relationship.
The financial statements are presented in New Zealand dollars ($), which is the Company’s functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand unless otherwise stated. b) Statement of compliance The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), and other applicable Financial Reporting Standards, as appropriate for profit orientated entities. The financial statements comply with International Financial Reporting Standards (IFRS).
The accounting policies set out below have been applied consistently to all periods presented in these financial statements, unless otherwise stated. c) Changes in accounting policies and disclosures i) New and amended standards adopted by the Group The following new accounting standards that became effective for accounting periods beginning on or after 1 January 2013 have been adopted by the Group in the financial statements; NZ IFRS 10 Consolidated Financial Statements, NZ IFRS 11 Joint Arrangements, NZ IFRS 12 Disclosure of Interest in Other Entities and NZ IFRS 13 Fair Value Measurement. The adoption of these standards has had no material impact on the Group. ii) Accounting standards and interpretations issued but not yet effective Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2014. These are noted below.
NZ IFRS 9 – Financial Instruments NZ IFRS 9 Financial Instruments, bringing together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The Group has not yet assessed the impact of this standard. The application date for this standard is for accounting periods beginning on or after 1 January 2018, the application date for the Group is 1 July 2018.
NZ IFRS 15 – Revenue from Contracts with Customers NZ IFRS 15 Revenue from Contracts with Customers establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of NZ IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle. Page 34 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
ii) Accounting standards and interpretations issued but not yet effective (continued) NZ IFRS 15 – Revenue from Contracts with Customers (continued) An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The Group has not yet assessed the impact of this standard. The application date for this standard is for accounting periods beginning on or after 1 January 2017; the application date for the Group is 1 July 2017. d) Basis of consolidation The consolidated financial statements comprise the financial statements of Television New Zealand Limited and its subsidiaries at 30 June.
Subsidiaries are those entities controlled, directly or indirectly, by the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated on consolidation.
Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting.
Investments in subsidiaries are accounted for at cost, less allowance for impairment, in the separate financial statements of the Company. e) Foreign currency The functional and presentational currency of Television New Zealand Limited and its subsidiaries is the New Zealand dollar ($).
Transactions in foreign currencies are translated to the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at balance date.
Differences arising on the translation of monetary assets and liabilities in foreign currencies are recognised in the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. f) Revenue recognition Revenue is stated exclusive of goods and services tax (GST) and consists of sales of goods and services to third parties. Revenue from the sale of goods and services is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Key classes of revenue are recognised on the following basis: i) Rendering of services Revenue from advertising and sponsorship is recognised as income at the time of transmission. ii) Government grants Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised as income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised as income in the income statement on a systematic basis over the useful life of the asset. iii) Other revenue Other revenue is recognised when the product has been delivered or in the accounting period in which the actual service has been provided. iv) Interest Revenue is recognised as interest accrues using the effective interest method. Page 35 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
g) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future.
Deferred tax assets are recognised where realisation of the asset is probable.
Deferred tax is measured at the tax rates that are expected to apply when the temporary differences reverse, based on tax rates (and tax law) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
h) Leases Operating lease payments, where the lessors substantially retain all the risks and benefits of ownership of the leased items, are recognised as an expense in the income statement on a straight-line basis over the lease term.
i) Dividends Provision is made for the amount of dividend declared on or before balance date but not distributed at balance date.
j) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the cost to acquire the asset and other directly attributable costs incurred to bring the asset to the location and condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Items of work in progress are transferred to the appropriate class of property, plant and equipment on completion. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Depreciation is calculated on a straight-line basis to allocate the cost of assets over their estimated useful lives. Land and work in progress is not depreciated.
The estimated useful lives for the current and comparable period are: Buildings 40 years Plant and equipment 3 to 10 years Motor vehicles 5 to 10 years
Property, plant and equipment held for sale Property, plant and equipment held for sale is stated at the lower of its carrying value and fair value less costs to sell. Property, plant and equipment held for sale is not depreciated while they are classified as held for sale.
Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit the asset belongs to. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Where an item of property, plant and equipment is derecognised, the gain or loss (calculated as the difference between the net proceeds and the carrying value of the item) is included in the income statement in the period the item is derecognised. Page 36 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
k) Intangible assets Programme rights Television programmes which are available for use, including those acquired overseas, are recorded at cost less amounts charged to the income statement based on management’s assessment of the useful life, which is regularly reviewed and additional write downs are made as considered necessary. Programmes produced internally for the purpose of broadcast are initially recognised as intangible assets at production cost. Production costs only include direct costs associated with the programme.
Programme rights are amortised on the following basis: (i) Certain programme rights including news and current affairs, sports and locally commissioned programmes are amortised on transmission.
(ii) All other programme rights (movie and non movie programme rights) are amortised on a straight line basis such that all rights are amortised within a period not exceeding one year from the broadcast licence period start date.
Frequency licences Frequency licences are recorded at cost less amortisation and impairment losses. Amortisation is calculated on a straight line basis over the period of the licence, 20 years.
Other intangible assets Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific asset. These costs are amortised on a straight line basis over their estimated useful economic lives of two to ten years.
Development costs Development costs on internal projects are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Any development costs capitalised are amortised over the period of the estimated economic life of the asset to which they relate.
Where an intangible asset is derecognised, the gain or loss (calculated as the difference between the net proceeds and the carrying value of the item) is included in the income statement in the period the item is derecognised. l) Cash and cash equivalents Cash and short term deposits in the statement of financial position comprise cash at the bank and in hand and short term deposits with an original maturity of three months or less.
For the purposes of the cash flow statement, cash and cash equivalents comprise cash and cash equivalents as defined above, net of outstanding overdrafts. m) Trade and other receivables Trade receivables are recognised and carried at original invoice amount and subsequently measured at amortised cost, less an allowance for impairment.
Collectability of trade receivables is reviewed on an ongoing basis and debts that are known to be uncollectible are written off immediately. An allowance for impairment is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 90 days overdue are considered objective evidence of impairment. n) Inventories Inventories comprise technical stores and videotape. All inventories are recorded at the lower of cost or net realisable value. o) Derivative financial instruments The Group uses derivative financial instruments, within predetermined policies and limits, to manage its exposure to foreign currency exchange rate risk and interest rate risk. The Group also enters into programme supply contracts that contain a foreign currency embedded derivative.
Such derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative contract is designed to hedge a specific risk and qualifies for hedge accounting. Page 37 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
o) Derivative financial instruments (continued) Each derivative that is designated as a hedge is classified as either: i) a fair value hedge when they hedge the exposure to changes in the fair value of a recognised asset or liability or a firm commitment; or ii) a cash flow hedge where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised in the income statement. Amounts accumulated are recycled in the income statement in the period when the hedged item affects profit or loss. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.
Hedge accounting is discontinued when the hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting. At that point any cumulative gain or loss existing in equity remains in equity until the forecast transaction occurs. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss is immediately transferred to the income statement.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are recognised immediately in the income statement. The fair value of forward exchange contracts and embedded derivatives are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to the current market values of similar instruments.
In accordance with its treasury policy, the Group does not engage in speculative transactions or hold derivative financial instruments for trading purposes. p) Borrowings and borrowing costs Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. q) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchases of goods and services. r) Investment in associate The Group’s investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements. Associates are entities over which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the income and expenses of the associate from the date that significant influence commenced until the date that significant influence ceases. The Group’s share of its associate post acquisition profits or losses is recognised in the income statement and its share of post acquisition movements in other comprehensive income is recognised in the statement of other comprehensive income. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate. s) Interest in a joint venture The interest in a joint venture is accounted for in the consolidated financial statements using the equity method of accounting and is carried at cost by the parent entity. Under the equity method, the Group’s share of the profits or losses of the joint venture is recognised in the income statement and the share of movements in other comprehensive income is recognised in the statement of other comprehensive income. The cumulative movements are adjusted against the carrying amount of the investment. Page 38 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
t) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to balance date. The benefits include wages and salaries, incentives, compensated absences and retirement leave which are expensed in the income statement when services are provided or benefits vest with the employee. The provision for employee benefits is stated at the present value of the estimated future cash outflows to be incurred resulting from employees’ services provided up to balance date. u) Provisions Provisions are recognised when the Group has present legal or constructive obligations as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
If the effect of time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
3) Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Estimates and assumptions are reviewed by management on an ongoing basis. Actual results may differ from these estimates.
Management has identified the following accounting policies for which significant judgements, estimates and assumptions are made:
Estimation of useful lives of property, plant and equipment and finite-lived intangible assets The estimated useful life of a particular asset is based on historical experience, the expected service potential of the asset and technological advances. Adjustments to useful lives are made when considered necessary.
Income taxes and deferred tax The Group’s accounting policy for taxation requires management to make estimates as to, amongst other things, the amount of tax that will be payable, the availability of losses to be carried forward and the recovery of deferred tax assets.
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences.
Capitalised development costs Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use. Actual results may differ from these estimates as a result of reassessment by management or taxation authorities. Page 39 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
4) Operating revenue Television revenue 306,842 311,607 306,842 311,607 Digital media revenue 12,890 9,925 12,890 9,925 Other trading revenue 17,155 23,432 17,155 23,432 336,887 344,964 336,887 344,964
Television revenue includes advertising, sponsorship and programme production funding on TV ONE, TV2, TVNZ Heartland, and TVNZ U (to 31 August 2013).
5) Expenses Expenses include: Employee benefits expense Wages and salaries and other short term benefits 87,774 89,354 87,774 89,354 Defined contribution superannuation expense 2,684 2,649 2,684 2,649 Less employee benefits charged to programmes/capitalised (32,542) (31,182) (32,542) (31,182) 57,916 60,821 57,916 60,821
Depreciation and amortisation Depreciation 9,872 11,580 9,872 11,580 Amortisation - software 5,376 5,008 5,376 5,008 Amortisation - licences 161 403 161 403 15,409 16,991 15,409 16,991
Auditor’s remuneration Audit of financial statements 277 276 277 276 Regulatory audits 11 12 11 12 288 288 288 288
Reorganisation costs Reorganisation costs 2,558 2,489 2,558 2,489
Costs associated with the reorganisation of parts of the Company have been fully recognised in the current financial year. These costs include redundancy, outplacement and other costs associated with changes in operational areas of the business to align with the Company strategy and technology changes.
Rental and operating lease costs Rental and operating lease costs 4,398 3,021 4,398 3,021
6) Remediation expense and asset impairment Television Centre asset impairment 3,188 0 3,188 0 Remediation expense reversal 0 (1,074) 0 (1,074) 3,188 (1,074) 3,188 (1,074)
In July and September 2013 the Company agreed to sell its properties at 85-93 Hobson Street, Auckland to Sky City Auckland Ltd. As a result of the sale of these properties the Company will need to undertake an extensive refurbishment of its building at 100 Victoria Street West, Auckland. Plant and equipment associated with this building that no longer has income generating capacity have been impaired to nil value.
The analogue transmission of television ceased on 30 November 2013. The Group had an obligation to decommission its analogue transmitters which were located on Kordia Limited transmission sites. In FY2012 an assessment of the estimated costs of decommissioning the analogue transmitters and remediating the sites was $3,000,000. The actual decommissioning and remediation costs were $1,074,000 below the original estimate and the surplus provision was reduced accordingly and recognised in the income statement in FY2013. Page 40 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
7) Financial instruments and foreign currency gains / (losses) Fair value changes of derivative financial instruments 1,410 380 1,410 380 Foreign currency realised gains/(losses) (1,217) (74) (1,217) (74) Foreign currency unrealised gains/(losses) (360) 205 (360) 205 Interest rate swaps realised losses 0 (117) 0 (117) (167) 394 (167) 394
8) Income tax a) Income tax The major components of income tax expense are: Income statement Current income tax Current period 6,501 5,747 6,501 5,747 Adjustments for prior year (107) 46 (107) 46 6,394 5,793 6,394 5,793 Deferred income tax Origination and reversal of temporary differences 531 1,433 531 1,433
Total income tax expense 6,925 7,226 6,925 7,226 b) Income tax recognised in other comprehensive income Net movement on revaluation of cash flow hedges 0 (102) 0 (102) Total income tax recognised directly in equity 0 (102) 0 (102) c) Reconciliation of income tax expense Profit/(loss) before income tax for the year 25,036 21,666 24,693 20,759 Taxation at 28% 7,010 6,066 6,914 5,812
Adjusted for the tax effect of: Non deductible expenditure 239 85 239 85 Non assessable income (1,905) (362) (1,905) (362) Share of results and impairment of associate 1,688 1,391 1,784 1,645 Income tax (over)/under provided in prior years (107) 46 (107) 46 Total tax expense 6,925 7,226 6,925 7,226 Page 41 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
8) Income tax (continued) d) Recognised deferred tax assets/(liabilities)
Group Company 2014 2014 Current Deferred Current Deferred income tax income tax income tax income tax $000 $000 $000 $000
Opening balance (1,364) 1,261 (1,364) 1,261 Charged to income statement - tax expense (6,394) (531) (6,394) (531) Charged to equity 0 0 0 0 Other payments/(receipts) 6,348 0 6,348 0 Closing balance (1,410) 730 (1,410) 730
Tax expense in income statement (6,925) (6,925)
Amounts recognised in the balance sheet: Deferred tax asset 730 730
Group Company 2013 2013 Current Deferred Current Deferred income tax income tax income tax income tax $000 $000 $000 $000
Opening balance (4,314) 2,796 (4,314) 2,796 Charged to income statement - tax expense (5,793) (1,433) (5,793) (1,433) Charged to equity 0 (102) 0 (102) Other payments 8,743 0 8,743 0 Closing balance (1,364) 1,261 (1,364) 1,261
Tax expense in income statement (7,226) (7,226)
Amounts recognised in the balance sheet: Deferred tax asset 1,261 1,261
Group Company Balance sheet Balance sheet 2014 2013 2014 2013 $000 $000 $000 $000
Deferred income tax at 30 June relates to the following: Deferred tax assets/(liabilities) Programme rights 7,426 8,313 7,426 8,313 Employee entitlements 2,552 2,304 2,552 2,304 Property, plant and equipment and software (9,471) (10,341) (9,471) (10,341) Provisions 291 583 291 583 Frequency licences 0 485 0 485 Doubtful debts 12 14 12 14 Other 201 237 201 237 Derivative financial instruments (281) (334) (281) (334) 730 1,261 730 1,261 Page 42 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group and Company 2014 2013 $000 $000 e) Imputation credit account The amount of imputation credits available for use in subsequent reporting periods 22,241 15,946
The Company and subsidiaries are part of the same consolidated tax group, therefore the imputation credits available to the Group and the Company are the same.
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
9) Cash and cash equivalents Cash at bank and in hand 15,715 6,070 15,715 6,070 Short term deposits 33,000 315 33,000 315 Cash and cash equivalents in the statement of cash flows 48,715 6,385 48,715 6,385
10) Trade and other receivables Trade receivables 40,468 46,349 40,468 46,349 Less provision for receivables impairment (42) (49) (42) (49) Prepaid programme rights 10,332 15,719 10,332 15,719 Prepayments - other 3,228 6,187 3,228 6,187 53,986 68,206 53,986 68,206 a) Provision for receivables impairment Trade receivables are non interest bearing and are generally on 30-60 day terms. A provision for receivables impairment is recognised when there is objective evidence that the receivable is impaired.
Movements in the provision for receivables impairment
At 1 July 49 20 49 20 Charge/(reversal) for the year (1 ) 59 (1 ) 59 Amounts written off (6 ) (30) (6 ) (30) At 30 June 42 49 42 49
Trade receivables that are less than 90 days overdue are not considered impaired. As at 30 June 2014 trade receivables of $1,185,000 (2013: $1,150,000) were past due but not considered impaired. Direct contact has been made with these debtors and the Company believes that payment will be made in full. Payment terms on these amounts have not been renegotiated however in most cases credit has been stopped until full payment is made. At 30 June, the ageing analysis of trade receivables is as follows:
Current 39,241 45,150 39,241 45,150 Up to 30 days overdue 648 1,031 648 1,031 Between 30 and 90 days overdue 537 119 537 119 Over 90 days overdue - past due considered impaired 42 49 42 49 40,468 46,349 40,468 46,349 b) Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value (refer note 21 for details of credit risk). Page 43 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
11) Property, plant and equipment
Group and Company Land & Plant & Motor Work in buildings equipment vehicles progress Total $000 $000 $000 $000 $000
Year ended 30 June 2014 At 1 July 2013 net of accumulated depreciation and impairment 52,542 20,879 703 491 74,615 Additions 1,193 2,452 2 4,835 8,482 Transfers from work in progress 169 198 0 (367) 0 Disposals (7,740) (418) 0 0 (8,158) Transfer to assets held for sale (3,929) (2 ) 0 0 (3,931) Depreciation charge (2,500) (7,184) (188) 0 (9,872) Impairment (2,987) 0 0 (200) (3,187) Closing net book amount 36,748 15,925 517 4,759 57,949
At 30 June 2014 Cost 76,758 148,057 2,903 4,959 232,677 Accumulated depreciation and impairment (40,010) (132,132) (2,386) (200) (174,728) 36,748 15,925 517 4,759 57,949
Year ended 30 June 2013 At 1 July 2012 net of accumulated depreciation and impairment 56,253 25,750 881 600 83,484 Additions 165 3,326 57 478 4,026 Transfers from work in progress 0 543 10 (553) 0 Transfer open work in progress to intangibles 0 0 0 (34) (34) Disposals (1,250) (31) 0 0 (1,281) Depreciation charge (2,626) (8,709) (245) 0 (11,580) Impairment 0 0 0 0 0 Closing net book amount 52,542 20,879 703 491 74,615
At 30 June 2013 Cost 99,312 179,464 2,974 491 282,241 Accumulated depreciation (46,770) (158,585) (2,271) 0 (207,626) 52,542 20,879 703 491 74,615
Transfers to assets held for sale At 30 June 2014 the Company had an agreement for the sale of land, buildings and equipment for the TVNZ Archive (book value of the assets: $3,931,000). The sale was settled on 1 August 2014. Page 44 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
12) Intangible assets
Group and Company Programme rights Software Licences Total $000 $000 $000 $000
Year ended 30 June 2014 At 1 July 2013 net of accumulated amortisation and impairment 44,439 15,001 112 59,552 Additions (internally generated) 58,620 0 0 58,620 Additions (externally purchased) 143,500 6,670 1,670 151,840 Disposals 0 (193) 0 (193) Amortisation charge (201,947) (5,376) (161) (207,484) Closing net book amount 44,612 16,102 1,621 62,335
At 30 June 2014 Cost 223,636 61,780 1,670 287,086 Accumulated amortisation (179,024) (45,678) (49) (224,751) 44,612 16,102 1,621 62,335
Current asset 44,612 0 0 44,612 Non-current asset 0 16,102 1,621 17,723 44,612 16,102 1,621 62,335
Year ended 30 June 2013 At 1 July 2012 net of accumulated amortisation and impairment 56,051 18,021 515 74,587 Additions (internally generated) 61,639 0 0 61,639 Additions (externally purchased) 121,754 1,954 0 123,708 Reclassification from PPE work in progress 0 34 0 34 Amortisation charge (195,005) (5,008) (403) (200,416) Closing net book amount 44,439 15,001 112 59,552
At 30 June 2013 Cost 228,993 58,396 16,341 303,730 Accumulated amortisation (184,554) (43,395) (16,229) (244,178) 44,439 15,001 112 59,552
Current asset 44,439 0 0 44,439 Non-current asset 0 15,001 112 15,113 44,439 15,001 112 59,552
Included in software are assets under development of $6,289,000 (2013: $157,000). Page 45 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
13) Investments in subsidiaries The Company’s investment in its subsidiaries comprises shares at cost less impairment and advances to subsidiaries less any provision for impairment. The shares in subsidiaries have been written down to nil value and all outstanding loans have been fully provided for (total impairment of $8,490,000). Intercompany loans to the value of $18,491,000 were forgiven during the year. Advances to subsidiaries are interest free, unsecured and repayable on demand.
Subsidiaries of Television New Zealand Limited comprise:
% holding Name Principal activity 2014 2013 TVNZ Satellite Services Limited Non trading 100% 100% nzoom Limited Non trading 100% 100% TVNZ International Limited Non trading 100% 100% TVNZ Investments Limited Non trading 100% 100% Horizon Pacific Television Limited and subsidiaries Non trading 100% 100%
All companies are incorporated in New Zealand. All have balance dates of 30 June.
14) Interest in associate Igloo Ltd was incorporated in July 2011. The Group’s initial investment was $12,250,000 for a 49% interest with Sky Network Television Ltd (Sky) owning the other 51%. On 30 June 2013 Igloo issued additional shares to Sky and Sky’s shareholding increased to 66% and the Group’s shareholding reduced to 34%. At this time an impairment on the initial investment of $5,875,590 was recognised by the Company. The Company also had an option to purchase an additional 216 shares that were exercisable between 1 July and 30 September 2015 at an agreed price. On 30 June 2014 the Company sold its shares in Igloo Ltd to Sky for $1.00 and the option to purchase further shares was cancelled. The Group has no outstanding or further obligations to Igloo.
The Group acquired a 33.33% interest in Hybrid Television Services (ANZ) Pty Ltd in 2009. Due to the uncertainty of Hybrid generating future surpluses an impairment charge equal to the value of the outstanding loans to Hybrid was recognised in prior periods and the Group also provided for costs associated with the future financial support of Hybrid (refer note 19). On 30 June 2014 the Group sold its shares in Hybrid back to Hybrid for $1.00 and has no future obligations to provide financial support to Hybrid.
Group Company 2014 2013 2014 2013 $000 $000 $000 $000 a) Movement in carrying amount of the Group’s investment in associate Igloo Limited At 1 July 6,060 11,000 6,374 12,250 Share of losses after income tax (2,055) (5,108) 0 0 Gain on deemed disposal 0 139 0 0 Share of comprehensive income after income tax (29) 29 0 0 Impairment (3,976) 0 (6,374) (5,876) At 30 June 0 6,060 0 6,374 Page 46 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
14) Interest in associate (continued) b) Share of results and impairment of associates Share of results in associate (2,055) (5,108) 0 0 Gain on deemed disposal 0 139 0 0 Impairment of associate (4,287) 0 (6,685) (5,876) (6,342) (4,969) (6,685) (5,876)
At 30 June 2014 the Group had no shareholding in Igloo and Hybrid and no contingent liabilities relating to these companies. To the knowledge of the Directors, there were no contingent liabilities relating to the Group’s interest in the associate companies and there were no contingent liabilities of the associates themselves at 30 June 2013. Igloo Limited had capital commitments of $1.27 million at 30 June 2013 and Hybrid had no capital commitments at 30 June 2013.
15) Interest in joint venture The Company has a 44.9% interest in Freeview Limited, an incorporated joint venture with Mediaworks TV Limited, Maori Television Service and Radio New Zealand Limited. Freeview Limited is audited by Ernst & Young and has a balance date of 30 June.
The carrying amount of the Company’s investment in Freeview Limited is $nil (2013: $nil).
The following table provides summarised financial information relating to the Company’s joint venture:
Extract from the joint venture balance sheet:
2014 2013 $000 $000
Current assets 866 889 Non-current assets 31 77 897 966
Current liabilities 897 966 Non-current liabilities 0 0 897 966 Net assets 0 0
Share of joint ventures net assets 0 0
Extract from joint venture income statement: Revenue 4,181 6,940 Net profit 0 0
To the knowledge of the Directors, there are no contingent liabilities relating to the Company’s interest in the joint venture and no contingent liabilities or capital commitments of the venture itself. Under the terms of the joint venture shareholder agreement the Company is required to fund its agreed share of net costs for the services provided by the joint venture. Page 47 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
16) Loans and borrowings The Group has a revolving cash advance facility committed to a maximum amount of $20 million (June 2013: $50 million); these facilities expire in December 2016. Any borrowings during the year were drawn down from these facilities. Refer Note 21 for details on management of interest rate risk related to these borrowings. The financing cash flow has been presented as a net movement. a) Fair values As at 30 June the carrying amount of the Group’s current and non-current borrowings is nil. b) Defaults and breaches During the current and prior years, there were no defaults or breaches of any loan covenants.
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
17) Trade and other payables Current Trade payables and accruals 39,723 39,632 39,723 39,632 Employee entitlements 6,526 7,086 6,526 7,086 Tax payable 1,410 1,364 1,410 1,364 47,659 48,082 47,659 48,082
Non-current Employee entitlements 1,283 1,541 1,283 1,541
18) Deferred income Government funding 1,676 4,159 1,676 4,159 Other 1,596 2,208 1,596 2,208 3,272 6,367 3,272 6,367 a) Government funding Group and Company MCH NZOA TMP Total $000 $000 $000 $000 Year ended 30 June 2014 At 1 July 2013 1,624 2,377 158 4,159 Received/invoiced during the year 1,182 6,105 5,250 12,537 Released to the income statement (1,916) (7,988) (5,116) (15,020) Closing net book amount 890 494 292 1,676
Year ended 30 June 2013 At 1 July 2013 2,308 1,237 220 3,765 Received/invoiced during the year 1,757 9,555 5,361 16,673 Released to the income statement (2,222) (8,415) (5,423) (16,060) Digital channels funding repaid (219) 0 0 (219) Closing net book amount 1,624 2,377 158 4,159
Government funding received during the year was in the form of cash, and has been recorded at fair value. The Ministry for Culture and Heritage (MCH) provides funding to TVNZ to provide transmission of TVNZ programmes to Pacific nations and maintain non-commercial transmission sites. The funding for the non-commercial transmission sites ended on 1 December 2013 when the nationwide switch over to digital transmission was completed. New Zealand On Air (NZOA) funds TVNZ for specific programmes and programme captioning and audio description. The funding for captioning and audio description ceased when these services were transitioned to ABLE, an independent trust, on 10 November 2013. Te Mangai Paho (TMP) provides funding for the production and broadcast of specific programmes. The funding will be recognised in the income statement to match the expenditure associated with this funding. Page 48 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
19) Provisions Reorganisation 1,039 1,412 1,039 1,412 Hybrid 0 1,006 0 1,006 1,039 2,418 1,039 2,418 a) Movement in provisions
Group and Company Reorganization Hybrid Total $000 $000 $000 At 1 July 2013 1,412 1,006 2,418 Raised during the year 1,039 311 1,350 Utilised during the year (1,412) (1,317) (2,729) At 30 June 2014 1,039 0 1,039
Current 1,039 0 1,039 Non-current 0 0 0 At 30 June 2014 1,039 0 1,039
Current 2013 1,412 503 1,915 Non-current 2013 0 503 503 At 30 June 2013 1,412 1,006 2,418 b) Nature and timing of provisions i) Reorganisation provision The reorganisation provision balance relates to the costs of redundancy, outplacement and other costs associated with changes in operational areas of the business to align with the Company strategy and technology changes. ii) Hybrid provision The Group held a 33.33% ownership share of Hybrid Television Services (Pty) Ltd, the Group was committed to financially support Hybrid and in prior years provided for expected future costs based on Hybrid forecasts and contractual commitments. At 30 June 2014 the Group sold its shares in Hybrid back to Hybrid and has no commitment to provide any further financial support to Hybrid. Page 49 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group Company 2014 2013 2014 2013 $000 $000 $000 $000
20) Derivative financial instruments Current assets Forward currency contracts - held for trading 442 0 442 0 Forward currency contracts - fair value hedge 10 3 10 3 Foreign currency embedded derivative contracts 1,001 975 1,001 975 1,453 978 1,453 978
Non-current assets Forward currency contracts - held for trading 230 0 230 0 Forward currency contracts - fair value hedge 6 0 6 0 Foreign currency embedded derivative contracts 1 31 1 31 Interest rate swap contracts 0 21 0 21 Share option 0 145 0 145 237 197 237 197
Current liabilities Forward currency contracts - held for trading 0 907 0 907 Forward currency contracts - fair value hedge 10 3 10 3 10 910 10 910
Non-current liabilities Forward currency contracts - fair value hedge 6 0 6 0 6 0 6 0 a) Instruments used by the Group Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposures to fluctuations in foreign exchange and interest risk. i) Forward currency contracts – held for trading The Group has entered into forward exchange rate contracts which are economic hedges but do not satisfy the requirements for hedge accounting. The following table details the notional amounts of these derivative financial instruments at balance date.
Group and Company 2014 2013 NZD NZD $000 $000 Buy AUD/Sell NZD - Maturity 0-12 months 54,763 26,327 Buy AUD/Sell NZD - Maturity 13 - 24 months 54,154 0 ii) Forward currency contracts – fair value hedge The Group has entered into forward exchange rate contracts which are economic hedges against the purchase of certain capital, programme rights and production expenditure. The fair value gains/(losses) on the hedged item are equal to the fair value gains/(losses) of the hedging instrument. The following table details the notional amounts of these derivative financial instruments at balance date.
Forward currency contracts – fair value hedge Buy AUD/Sell NZD - Maturity 0 - 12 months 1,147 0 Buy AUD/Sell NZD - Maturity 13 - 24 months 772 0 Buy USD/Sell NZD - Maturity 0-12 months 0 82 Page 50 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
20) Derivative financial instruments (continued)
Group and Company 2014 2013 $000 $000
iii) Foreign currency embedded derivative contracts The Group has entered into programme supply contracts that contain a foreign currency embedded derivative. The following table details the notional amounts of these embedded derivatives at balance date.
Embedded derivatives Sell AUD/Buy NZD - Maturity 0-12 months 21,591 21,955 Sell AUD/Buy NZD - Maturity 13-24 months 132 505
iv) Interest rate swaps – cash flow hedge To protect against rising interest rates the Group hedges its borrowings by entering into interest rate swaps contracts under which it has the right to receive interest at variable rates and pay interest at fixed rates. The interest swaps require settlement of net interest receivable or payable each 91 days. The settlement dates coincide with dates on which the interest is payable on the underlying debt. Swaps that are matched directly against the appropriate loans and interest expense are considered highly effective. They are settled on a net basis. The swaps are measured at fair value and all gains and losses attributable to the hedged risk are recognised in other comprehensive income and reclassified into profit or loss when the interest expense is recognised. As at 30 June 2013 there were interest rate swaps with a notional value of $10,000,000 that were not designated as cash flow hedges, the fair value gains and losses are recognised in profit or loss. No interest rate swaps are held at 30 June 2014.
At 30 June the notional principal amounts and period of expiry of the interest rate swap contracts are as follows:
Maturity 0-12 months 0 0 Maturity 13-24 months 0 0 Maturity 25-36 months 0 10,000 0 10,000 v) Share option At 30 June 2013 the Company had an option to purchase additional shares in Igloo Limited which were exercisable between 1 July 2015 and 30 September 2015. The fair value gain of this option was recognised in the income statement in FY2013. At 30 June 2014 the Company no longer has any ownership of Igloo and does not hold an option to purchase shares in Igloo, the fair value gain recognised in prior years has been derecognised in the income statement.
21) Financial risk factors The Group’s activities expose it to a variety of financial risks including currency risk, interest rate risk, credit risk and liquidity risk. The Group’s overall risk management policy seeks to minimise potential adverse effects on the Group’s financial performance.
Treasury policies have been approved by the Board for managing each of these risks including levels of authority on the type and use of financial instruments. The Group enters into derivative transactions, principally forward currency contracts and interest rate swaps, only if they relate to underlying exposures.
The Group has the following categories of financial instruments: Held for trading financial assets (including derivative financial instruments); loans and receivables (including cash and cash equivalents and trade receivables); held for trading financial liabilities (including derivative financial instruments); and financial liabilities measured at amortised cost (including trade and other payables and loans and borrowings).
The carrying amounts of these financial instruments are disclosed on the face of the statement of financial position or in each of the applicable notes.
Currency risk The Group undertakes transactions denominated in foreign currencies, predominately Australian dollars, for programme rights’ purchases. As a result of these transactions the Group has exposure to foreign exchange risk. The Group’s foreign exchange policy is to hedge a portion of material foreign currency denominated costs at the time of the commitment on a rolling 24 month basis. The Group ensures that its net exposure to foreign denominated cash balances is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances. Page 51 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
21) Financial risk factors (continued)
At 30 June the Group had the following foreign currency exposures. Group Company 2014 2013 2014 2013 $000 $000 $000 $000 Financial assets Cash and cash equivalents 627 169 627 169 Trade and other receivables 589 93 589 93 1,216 262 1,216 262
Financial liabilities Trade and other payables (11,935) (12,347) (11,935) (12,347) (11,935) (12,347) (11,935) (12,347)
Foreign currency derivatives Forward contracts 108,917 26,409 108,917 26,409 Embedded derivatives (21,723) (22,460) (21,723) (22,460) 87,194 3,949 87,194 3,949
Total net exposure 76,475 (8,136) 76,475 (8,136)
At 30 June, had the New Zealand dollar strengthened/(weakened) by 10% against foreign currencies with all other variables held constant, post tax profit and equity would have been (lower)/higher as follows:
Group and Company Post tax profit Equity +10% (10%) +10% (10%) 2014 (5,524) 5,524 0 0 2013 584 (584) 0 0
Interest rate risk The Group’s exposure to interest rate risk relates primarily to long term borrowings.
At 30 June, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk.
Group Company 2014 2013 2014 2013 $000 $000 $000 $000 Financial assets Cash and cash equivalents 48,715 6,385 48,715 6,385
Financial liabilities Bank overdrafts 0 0 0 0 Bank loans 0 0 0 0 Net exposure 48,715 6,385 48,715 6,385 Page 52 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
21) Financial risk factors (continued) The Group’s interest rate policy is to have between 0% and 100% of its borrowings at fixed rates over the medium term. The Group uses interest rate swaps in order to achieve the desired mix between fixed and floating rates. These swaps are designated to hedge underlying debt obligations.
At 30 June, if interest rates had increased/(decreased) by 1% with all other variables held constant, post tax profit and equity would have been (lower)/higher as follows:
Group and Company Post tax profit Equity +1% (1%) +1% (1%) 2014 0 0 0 0 2013 41 (41) 0 0
Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its obligations. In the normal course of business the Group incurs credit risk with financial institutions and trade receivables. The Group has a credit policy which is used to limit counterparty risk through restrictions on the amount of short-term investments that may be placed with any one approved financial institution.
The maximum exposure at balance date equals the carrying value of cash, derivative financial instruments (assets) and trade receivables as shown in the statement of financial position and specified in applicable notes.
The major concentration of credit risk within trade receivables is the extension of credit to advertisers through accredited advertising agencies. These agencies are required to comply with a formal accreditation process, which includes the regular review of their financial position. Each accredited agency is required to meet a certain financial ratio or alternatively provide other forms of financial reassurance to the Group. The Group has a credit insurance policy for a selected range of agencies, to protect against loss through default. The Group does not have any other significant concentrations of credit risk.
The Group does not require collateral or security to support financial instruments due to the quality of the counterparties with which it deals.
Liquidity risk Liquidity risk is the risk that the Group and Company may be unable to meet its financial obligations as they fall due. It is the Group’s policy to ensure that adequate funding is available at all times to meet future commitments as they arise. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows.
At 30 June 2014 the Group has available $20,000,000 (2013: $50,000,000) of undrawn committed facilities. These bank facilities expire in December 2016. Page 53 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
21) Financial risk factors (continued)
The table below analyses the contractual cash flows for all financial liabilities and derivatives
2014 Within One to two Two to five Total one year years years Group $000 $000 $000 $000 Trade and other payables 39,723 0 0 39,723 Forward exchange contracts - outflow 55,910 54,926 0 110,836 Forward exchange contracts - inflow (56,352) (55,156) 0 (111,508) 39,281 (230) 0 39,051
Within One to two Two to five Total one year years years Company $000 $000 $000 $000 Trade and other payables 39,723 0 0 39,723 Forward exchange contracts - outflow 55,910 54,926 0 110,836 Forward exchange contracts - inflow (56,352) (55,156) 0 (111,508) 39,281 (230) 0 39,051
2013 Within One to two Two to five Total one year years years Group $000 $000 $000 $000 Trade and other payables 39,632 0 0 39,632 Forward exchange contracts - outflow 26,409 0 0 26,409 Forward exchange contracts - inflow (25,502) 0 0 (25,502) 40,539 0 0 40,539
Within One to two Two to five Total one year years years Company $000 $000 $000 $000 Trade and other payables 39,632 0 0 39,632 Forward exchange contracts - outflow 26,409 0 0 26,409 Forward exchange contracts - inflow (25,502) 0 0 (25,502) 40,539 0 0 40,539 Page 54 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
21) Financial risk factors (continued) Fair value The Group uses various methods in estimating the fair value of a financial instrument. The methods comprise:
Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
The fair value of the financial instruments is estimated using Level 2 criteria such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. The fair values of these level 2 financial instruments are presented in the following table.
Group and Company 2014 2013 $000 $000 Financial assets Derivative instruments Foreign currency contracts 688 3 Foreign currency embedded derivative contracts 1,002 1,006 Interest rate swaps 0 21 Share option 0 145 1,690 1,175
Financial liabilities Derivative instruments 16 910 Foreign currency contracts 16 910
Capital management The Group’s capital includes share capital, reserves and retained earnings.
The Crown has a general preference for state-owned enterprises and Crown-entity companies (including TVNZ) to manage their balance sheets to a BBB credit rating. The Group’s capital structure is broadly in line with the Crown’s expectations. The Group targets a gearing ratio of less than 40% (refer note 28e).
There have been no material changes to the Group’s management of capital during the year. Page 55 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
22) Share capital and reserves
For movements in share capital and reserves refer to the Statement of Changes in Equity. a) Share capital As at 30 June 2014 there were 140,000,000 shares ($1 each) issued and fully paid (2013: 140,000,000). All ordinary shares rank equally with one vote per share and carry rights to dividends.
Upon winding up, shareholders rank equally with regard to the Company’s residual assets. b) Nature and purpose of the cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.
Group Company 2014 2013 2014 2013 $000 $000 $000 $000 Movement in cash flow hedge reserve: Opening balance 29 (263) 0 (263) Transferred to income statement 0 263 0 263 Charged to other comprehensive income (29) 29 0 0 Closing balance at 30 June 0 29 0 0
23) Cash flow statement reconciliation
Reconciliation of net profit after tax to net cash flows from operations Net profit 18,111 14,440 17,768 13,533 Adjustments for: Depreciation and impairment 13,059 11,580 13,059 11,580 Amortisation 5,537 5,411 5,537 5,411 Gain on disposal of property, plant and equipment (7,820) (1,028) (7,820) (1,028) Unrealised foreign currency losses/(gains) 360 (205) 360 (205) Share of associate net results and provisions 6,342 4,969 6,685 5,876
Proceeds from insurance claim classified as investing 0 (4,200) 0 (4,200) Other 42 0 42 0
Changes in assets and liabilities (Increase)/decrease in trade and other receivables 14,210 (7,436) 14,210 (7,436) (Increase)/decrease derivative financial instruments (1,409) (382) (1,409) (382) (Increase)/decrease deferred tax asset 531 1,433 531 1,433 (Increase)/decrease inventories 7 48 7 48 (Increase)/decrease programme rights (173) 11,612 (173) 11,612 Increase/(decrease) trade and other payables (1,058) (10,942) (1,058) (10,942) Increase/(decrease) deferred income (3,095) 183 (3,095) 183 Increase/(decrease) income tax payable 46 (2,950) 46 (2,950) Increase/(decrease) provisions (373) (5,051) (373) (5,051) Net cash from operating activities 44,317 17,482 44,317 17,482 Page 56 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
24) Related party disclosures a) Subsidiaries The consolidated financial statements include the financial statements of Television New Zealand Limited and its subsidiaries, listed in note 13. The Company did not purchase or supply goods and services from or to any of its subsidiaries during the year (2013: $nil). b) Joint venture The following table provides the total amount of transactions that were entered into with Freeview Limited.
Company 2014 2013 $000 $000 Joint venture Revenue from Freeview Limited 1,622 2,625 Purchases from Freeview Limited 257 485
Amounts owed by Freeview Limited 255 196 Amounts owed to Freeview Limited 0 0
All transactions with the joint venture arise in the normal course of business on an arm’s length basis. None of the balances are secured. c) Associate
Funding to Hybrid Television Services (ANZ) Pty Ltd 1,317 714
All funding to the associate has been written off. d) Government entities
Funding from government entities 15,020 16,060 Revenue from government entities 1,256 1,588 Purchases from government entities 11,461 22,229
Amounts owed by government entities 358 3,298 Amounts owed to government entities 210 281
Revenue in advance from government entities 1,676 4,159
All sales and purchases with government owned entities arise in the normal course of business on an arm’s length basis. None of the balances are secured. e) Key management personnel Key management consists of TVNZ’s Chief Executive Officer and the members of the executive team (current and former during the year). Key management personnel compensation is as follows:
Salary and other short term benefits 4,311 4,100 Defined contribution superannuation expense 205 199 Termination benefits 0 270 4,516 4,569 f) Directors Directors’ fees 337 315
Certain Directors are also non-executive directors of companies with which TVNZ has transactions in the normal course of business. Any transactions undertaken with these entities have been entered into on an arm’s length commercial basis. Page 57 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
Group and Company 2014 2013 $000 $000 25) Commitments a) Programme rights Within one year 126,436 114,370 One to two years 84,488 87,058 Two to five years 101,292 139,901 Later than five years 0 16,696 312,216 358,025
Commitments for programme rights are primarily denominated in Australian dollars and are converted at the exchange rate ruling at the date of transaction and revalued at year end. The commitments are determined with reference to the licence period start dates.
b) Operating leases Within one year 6,270 3,283 One to two years 3,231 1,887 Two to five years 2,565 1,682 Later than five years 0 765 12,066 7,617 c) Finance leases Neither the Company nor the Group had any finance lease commitments at balance date (2013: nil). d) Property, plant and equipment and software Within one year 21,102 258 One to two years 10,209 0 31,311 258
26) Contingent liabilities In the normal course of business various legal claims have been made against Television New Zealand Limited. Given the stage of proceedings and uncertainty as to the outcomes of the claims, no estimate of the financial effect can be made and no provision for any potential liability has been made in the financial statements.
27) Events after the balance sheet date On 14 July 2014 the Company had an unconditional agreement to sell its New Zealand Television Archive properties and certain equipment to Her Majesty the Queen acting by and through the Minister for Land Information for $9,320,000. This sale was formally settled on 1 August 2014.
There have been no other significant events occurring since balance date requiring disclosure. Page 58 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
28) Comparison of forecast to actual results Group Actual Forecast $000 $000 a) Financial performance Revenue 360,585 357,273 Operating expenses (325,603) (328,238) Earnings before asset impairment and remediation expense, interest, tax, financial instruments and associates 34,982 29,035
Interest expense (249) (701) Asset impairment and remediation expenses (3,188) 0 Financial instruments/foreign currency gains/(losses) (167) 0 Share of results of associated company (2,055) (3,629) Impairment and provision of associate (4,287) 0 Income tax expense (6,925) (7,934) Net profit/(loss) for the year 18,111 16,771
b) Movements in equity Net profit/(loss) for the year 18,111 16,771
Distributions to the shareholder 0 (9,811) Other comprehensive income (29) 0 Movements in equity for the year 18,082 6,960 Equity at start of the year 158,080 157,465 Equity at end of the year 176,162 164,425
The gain on sale of property, plant and equipment offset the below forecast growth in advertising. Operating expenses are below forecast levels as a result of cost savings initiatives implemented during the year. Interest expense is below forecast due to low levels of borrowings. The share of associate company results (Igloo) are below forecast. The impairment and provision of associate relates to the write down and sale of shares in Igloo and Hybrid. Fair value changes in financial instruments are not forecasted due to the inherent volatility in exchange rates; there was a loss for the year. The income tax variance is primarily due to non-assessable gains on the sale of land.
No dividend was paid in FY2014 as the Shareholding Ministers agreed to forgo dividends to assist in the funding of the refurbishment of the Auckland Television Centre.
c) Financial position Current assets 148,861 130,501 Property, plant and equipment held for sale 3,931 0 Non-current assets 76,639 97,583 Total assets employed 229,431 228,084
Current liabilities 51,980 55,798 Non-current liabilities 1,289 7,861 Total liabilities 53,269 63,659
Share capital 140,000 140,000 Retained earnings 36,162 24,425 Total equity 176,162 164,425 Total equity and liabilities 229,431 228,084
Certain balance sheet forecasted amounts have been reclassified to give a direct comparison to actual results. Current assets are greater than forecast due to higher levels of funds on deposit. Non-current assets are below forecast due to the sale of land and buildings that had not been forecasted. Current liabilities are below forecast due to lower levels of payables and provision than forecasted. The lower levels of term liabilities than forecast are a result of the sale of assets and the Shareholding Ministers agreeing to forgo dividends. Page 59 TVNZ Annual Report FY2014
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2014
28) Comparison of forecast to actual results (continued) Group Actual Forecast $000 $000 d) Cash flows Net cash flows from/(to): Operating activities 44,317 26,587 Investing activities (1,968) (15,000) Financing activities 0 (9,811) Net (decrease)/increase in cash held 42,349 1,776
Add opening cash brought forward 6,385 5,363 Net foreign exchange differences (19) 0 Ending cash carried forward 48,715 7,139
Lower levels of expenditure and improved cash collections have resulted in above forecast cash flows from operating activities. Cash flows to investing activities are lower than forecast due to the sale of 85-93 Hobson Street partly offsetting capital expenditure for the year. Financing activities are below budget as the forecasted dividend was not paid due to the Shareholding Ministers forgoing dividend to assist in the cost of refurbishment of the Auckland Television Centre. These variances have resulted in higher cash holdings at year end.
e) Performance targets Profitability Return on average equity 10.8% 10.1% EBITDA/television advertising revenue 16.4% 14.4% Gearing Net interest bearing debt/net interest bearing debt plus equity 0.0% < 40% Financial stability Total equity/total assets 76.8% > 40% Interest cover EBITDA/interest expense 202 times > 4 times
EBITDA – earnings before interest, tax, depreciation, amortisation, impairments, financial instruments and associate earnings. Page 60 TVNZ Annual Report FY2014
STATEMENT OF SERVICE PERFORMANCE For the year ended 30 June 2014
This statement reports on the performance of Television New Zealand Limited (TVNZ) in relation to the output targets set in the Statement of Intent for the year ended 30 June 2014.
TVNZ reports under the Crown Entities Act 2004. Under this Act, TVNZ’s expectations of revenue and related outputs were stated in the Statement of Intent for the year ended 30 June 2014 for all categories of funding received directly from the Crown.
TVNZ has been granted an exemption under section 143 of the Crown Entities Act from including in its Statement of Service Performance outputs which are not directly funded (in whole or in part) by the Crown. a) Transmitting TVNZ programmes to Pacific nations with funding from the Ministry for Culture and Heritage The transmission funding received by TVNZ is to enable it to transmit programming by satellite to Pacific nations.
TVNZ undertakes to provide a minimum 11 hours transmission of TVNZ programming to Pacific nations weekly, such programming to include the daily transmission of ONE News at 6pm, the weekly transmission of Tagata Pasifika and the transmission of other programmes relevant to the Pacific nations within available funding.
The following Pacific nations received programming:
• Cook Islands • Niue • Fiji • Samoa • Nauru • Tonga
Total funding received from the Ministry for Culture and Heritage: $607,000 (2013: $607,000).
Total costs of transmission: $500,194. The unspent funding will be carried forward to FY2015 and will be used on repairs and maintenance and training.
FY2014 FY2013 Programmes transmitted Hours Hours
ONE News 365.5 365.0 Te Karere 127.5 127.0 Seven Sharp 118.0 107.0 Midday News 119.0 8.0 What Now 80.0 84.0 Q + A 39.0 27.0 Marae 29.0 27.0 Tagata Pasifika 27.0 26.0 Waka Huia 26.5 31.5 Praise Be 26.5 26.5 Te Kaea 26.0 9.0 Fresh 13.0 19.0 TOTES Maori / I Am TV 12.5 24.0 4:30 News 0.0 60.5 Breakfast Weekend 0.0 48.0 Festival of Pacific Arts 0.0 39.0 Polyfest 0.0 9.0 Other 38.0 17.0 Total Hours 1047.5 1055.0 Average hours per week 20.1 20.3 Page 61 TVNZ Annual Report FY2014
STATEMENT OF SERVICE PERFORMANCE (CONTINUED) For the year ended 30 June 2014
b) Maintaining non-commercial transmission sites with funding from the Ministry for Culture and Heritage This funding is to assist the transmission coverage of the TV ONE and TV2 signals to those New Zealand communities that would not otherwise receive a commercially viable terrestrial signal. Funding for the delivery of non-commercial transmission ceased at the completion of the digital switch over in late 2013.
The Company operated and maintained 108 non-commercial transmission sites in accordance with the Memorandum of Understanding with the Ministry for Culture and Heritage.
TVNZ undertook to meet performance standards including the quality of the signal, maintenance and responses to faults, and to provide performance reports at six-monthly intervals. It contracted transmission company Kordia to provide services to discharge these obligations.
The required performance standard was achieved through compliance with covenants contained in the Memorandum of Understanding.
Total funding received from the Ministry for Culture and Heritage to subsidise the cost of maintaining transmission from the non-commercial transmission sites, was $575,000 (2013: $1,150,000). Page 62 TVNZ Annual Report FY2014
REPORT OF THE AUDITOR-GENERAL
Chartered Accountants
INDEPENDENT AUDITOR’S REPORT
TO THE READERS OF TELEVISION NEW ZEALAND LIMITED AND GROUP’S FINANCIAL STATEMENTS AND NON-FINANCIAL PERFORMANCE INFORMATION FOR THE YEAR ENDED 30 JUNE 2014
The Auditor-General is the auditor of Television New Zealand Limited (the company) and group. The Auditor-General has appointed me, Brent Penrose, using the staff and resources of Ernst & Young, to carry out the audit of the financial statements and non-financial performance information of the company and group on her behalf.
We have audited: - the financial statements of the company and group on pages 28 to 59, that comprise the statement of financial position as at 30 June 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and notes to the financial statements that include accounting policies and other explanatory information; and
- the non-financial performance information of the company and group that comprises the statement of service performance on pages 60 to 61 and which includes outcomes.
Opinion Financial statements and non-financial performance information
In our opinion: - the financial statements of the company and group on pages 28 to 59: - comply with generally accepted accounting practice in New Zealand; - comply with International Financial Reporting Standards; and - give a true and fair view of the company and group’s: - financial position as at 30 June 2014; and - financial performance and cash flows for the year ended on that date. - the non-financial performance information of the company and group on pages 60 to 61: - complies with generally accepted accounting practice in New Zealand; and - gives a true and fair view of the company and group’s service performance and outcomes for the year ended 30 June 2014, including for each class of outputs: - the service performance compared with forecasts in the statement of forecast service performance at the start of the financial year; and - the actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the start of the financial year.
Other legal requirements In accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the company and group as far as appears from an examination of those records.
Our audit was completed on 30 September 2014. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and we explain our independence. Page 63 TVNZ Annual Report FY2014
REPORT OF THE AUDITOR-GENERAL (CONTINUED)
Basis of opinion We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and non-financial performance information are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers’ overall understanding of the financial statements and non-financial performance information. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and non- financial performance information. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and non-financial performance information, whether due to fraud or error. In making those risk assessments; we consider internal control relevant to the preparation of the company and group’s financial statements and non-financial performance information that give a true and fair view of the matters to which they relate. We consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
An audit also involves evaluating: - the appropriateness of accounting policies used and whether they have been consistently applied; - the reasonableness of the significant accounting estimates and judgements made by the Board of Directors; - the appropriateness of the reported service performance within the company and group’s framework for reporting performance; - the adequacy of all disclosures in the financial statements and non-financial performance information; and - the overall presentation of the financial statements and non-financial performance information.
We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and non-financial performance information. Also we did not evaluate the security and controls over the electronic publication of the financial statements and non-financial performance information.
In accordance with the Financial Reporting Act 1993 we report that we have obtained all the information and explanations we have required. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Responsibilities of the Board of Directors The Board of Directors is responsible for preparing financial statements and non-financial performance information that: - comply with generally accepted accounting practice in New Zealand; - give a true and fair view of the company and group’s financial position, financial performance and cash flows; and - give a true and fair view of the company and group’s service performance and outcomes.
The Board of Directors is also responsible for such internal control as is determined necessary to enable the preparation of financial statements and non-financial performance information that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial statements and non-financial performance information, whether in printed or electronic form.
The Board of Directors’ responsibilities arise from the Crown Entities Act 2004, the Financial Reporting Act 1993 the Television New Zealand Act 2003.
Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and non-financial performance information and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001 and the Crown Entities Act 2004.
Independence When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board.
In addition to the audit we have carried out other assurance assignments for the company and group which are compatible with those independence requirements.
Other than the audit and the other assurance assignments, we have no relationship with or interests in the company or any of its subsidiaries.
Brent Penrose Ernst & Young On behalf of the Auditor-General Auckland, New Zealand Page 64 TVNZ Annual Report FY2014
FIVE YEAR TREND STATEMENT For the year ended 30 June 2014
2014 2013 2012 2011 2010 $000 $000 $000 $000 $000
Group financial performance Television revenue 306,842 311,607 318,259 309,414 290,364 Other revenue 53,743 50,503 63,578 68,482 64,973 Total revenue 360,585 362,110 381,837 377,896 355,337 EBITDA 50,391 43,276 50,888 53,088 30,610 Profit/(deficit) for the year 18,111 14,440 14,207 2,080 (26,026) Dividends 0 11,287 13,828 4,871 1,472
Group financial position Assets employed: Current assets 104,249 75,671 71,470 59,945 58,419 Programme rights 44,612 44,439 56,051 44,212 47,076 Property, plant and equipment (incl. held for sale) 61,880 74,615 83,484 100,383 114,324 Other non-current assets 18,690 22,673 32,376 24,150 38,870 Total assets employed 229,431 217,398 243,381 228,690 258,689
Funds employed: Share capital 140,000 140,000 140,000 140,000 140,000 Reserves 0 29 (263) (238) (255) Retained earnings 36,162 18,051 14,898 14,519 17,310 Total equity 176,162 158,080 154,635 154,281 157,055 Current liabilities 51,980 57,274 73,440 60,725 63,243 Non-current loan and borrowings 0 0 10,000 10,000 36,600 Other non-current liabilities 1,289 2,044 5,306 3,684 1,791 Total funds employed 229,431 217,398 243,381 228,690 258,689
Financial ratios EBITDA*/total revenue 14.0% 12.0% 13.3% 14.0% 8.6% Net surplus after taxation**/equity (average) 10.8% 9.2% 9.2% 1.3% -16.6% Equity/total assets employed 76.8% 72.7% 63.5% 67.5% 60.7% Debt/ debt plus equity 0.0% 0.0% 6.1% 6.1% 18.9% Interest cover (times) *** 202.4 38.7 31.5 19.6 10.4
* EBITDA: earnings before interest, tax, depreciation, amortisation, programme amortisation revision, impairments, remediation expenses, associate earnings and financial instruments.
** As per reported earnings.
*** EBITDA/Interest expense. Page 65 TVNZ Annual Report FY2014
ADDITIONAL INFORMATION For the year ended 30 June 2014
Principal activity The Group’s principal activity during the year was television (programme content supply and delivery, production, acquisition of television programmes, and online services).
Shareholding The Group is wholly owned by the Crown.
The Shareholding Ministers at balance date were: Hon Bill English Minister of Finance Hon Craig Foss Minister of Broadcasting
Directors Ms Julia Raue was appointed to the Board on 1 May 2014.
Auditor The Auditor-General is the auditor of the Group in accordance with Section 14 (1 ) of the Public Audit Act 2001 and has appointed Brent Penrose of Ernst & Young to act for and on her behalf as auditor in 2014.
General disclosures The following disclosure of interests were made to the Board:
Directors’ disclosures General disclosures of interest given by the Company pursuant to Section 211 of the Companies Act 1993 as at 30 June 2014:
Alison Gerry Kiwibank Limited Director Michael Hill International Violin Competition Trustee NZX Limited Director Pioneer Generation Limited Director Queenstown Airport Corporation Limited Director
Richard Long Asia NZ Foundation Trustee New Zealand France Friendship Fund Chairman
Roger MacDonnell Auckland Arts Festival Trustee Hourigan International (New Zealand) Chairman Hourigan International (Sydney) Director Ice Capital Investments Limited Director MacDonnell & Associates Limited Director Image Centre Holdings Limited Director
Julia Raue Air New Zealand Limited Chief Information Officer
Barrie Saunders Port CEO Group Chairman Saunders Unsworth Limited Director Taiwan New Zealand Trade Development Limited Director
Wayne Walden Arcos Investments Limited Director Ports of Auckland Limited Director
Therese Walsh ICC Cricket World Cup Head of New Zealand International Development Advisory & Selection Panel, Ministry of Foreign Affairs and Trade Chair NZ Major Events Investment Panel, MBIE Member NZX Limited Director (from 1 October 2014) Strategic Risk and Resilience Panel, DPMC Member Wellington Regional Stadium Trust Trustee (from 1 April 2015) Page 66 TVNZ Annual Report FY2014
ADDITIONAL INFORMATION (CONTINUED) For the year ended 30 June 2014
Directors’ disclosures (continued)
Joan Withers ANZ Bank New Zealand Limited Director Louise Perkins Foundation Trustee Mighty River Power Limited Chair Pure Advantage Trustee The Tindall Foundation Trustee The Treasury Member
Specific disclosures No specific disclosures were given pursuant to Section 211 of the Companies Act 1993.
Use of Company information No notices have been given to the Board under Section 145 of the Companies Act 1993 with regard to the use of Company information received by Directors in their capacity as a Director.
Directors’ remuneration and benefits The following persons held the office of Director of the Company during the year and received the total amount of remuneration and other benefits shown.
Director $ Wayne Walden - Chairman 80,000 Alison Gerry 40,000 Richard Long 40,000 Roger MacDonnell 40,000 Julia Raue - appointed 1 May 2014 6,667 Barrie Saunders 40,000 Therese Walsh 40,000 Joan Withers - Deputy Chair 50,000 336,667
Directors’ indemnity insurance The Company has arranged Directors’ and officers’ liability insurance cover with QBE Insurance (International) Limited for $25 million. This cover is effected for all Directors and Officers of the Group. Page 67 TVNZ Annual Report FY2014
ADDITIONAL INFORMATION (CONTINUED) For the year ended 30 June 2014
Employee remuneration Employee remuneration includes salary, at risk remuneration, payments for projects, programme production, presentation, motor vehicles, employer’s contributions to superannuation and health schemes, redundancy, other compensation on termination of employment and other sundry benefits received in their capacity as employees.
Employees include executives and staff involved in programme production and presentation where applicable.
Employee remuneration in overseas locations has been converted to New Zealand dollars at current exchange rates.
Current Former employees employees $100,000 to $110,000 46 2 $110,001 to $120,000 40 1 $120,001 to $130,000 29 3 $130,001 to $140,000 17 2 $140,001 to $150,000 14 2 $150,001 to $160,000 11 4 $160,001 to $170,000 5 2 $170,001 to $180,000 5 1 $180,001 to $190,000 9 1 $190,001 to $200,000 6 2 $200,001 to $210,000 2 2 $210,001 to $220,000 5 0 $220,001 to $230,000 3 0 $230,001 to $240,000 5 0 $240,001 to $250,000 0 1 $250,001 to $260,000 0 1 $260,001 to $270,000 3 0 $270,001 to $280,000 0 1 $280,001 to $290,000 0 1 $290,001 to $300,000 1 1 $300,001 to $310,000 1 1 $310,001 to $320,000 2 0 $330,001 to $340,000 1 0 $340,001 to $350,000 1 0 $370,001 to $380,000 2 0 $460,001 to $470,000 1 0 $540,001 to $550,000 1 0 $570,001 to $580,000 1 0 $680,001 to $690,000 1 0 $1,020,001 to $1,030,000 1 0 213 28
Employee compensation on termination of employment During the year $2,402,079 compensation was paid in total to 56 employees whose employment was terminated. Compensation includes redundancy entitlements, payment in lieu of notice and any payments in settlement of disputes. Page 68 TVNZ Annual Report FY2014
Corporate Governance
THE BOARD At year end, membership of the Committee was comprised of Alison Role of the Board Gerry (Chair), Barry Saunders, Therese Walsh and Wayne Walden. In addition to its duties under the Companies Act 1993, the Board, under Section 92 of the Crown Entities Act 2004, must ensure Remuneration and HR Committee that the Company acts in a manner consistent with its objectives, functions, Statement of Intent and Statement of Performance The Remuneration and HR Committee met four times during Expectations. the year.
The Board negotiates the Statement of Intent and Statement Its work is consistent with TVNZ’s obligations to be a good employer of Performance Expectations with its shareholding Ministers. It under the Crown Entities Act 2004. In addition to its role of adding includes the Company’s objectives, nature and scope of the activities value to TVNZ Human Resources plans and practices at a strategic to be undertaken and the performance targets and other measures level, the Committee approves any movement to the remuneration by which its performance may be judged for the current year and of the Company’s senior executives and presenters. The Committee following two years. The Board monitors management’s performance also approves the level of any ‘at risk’ payments to be awarded to relative to these objectives and targets. executives, based on the Company’s business performance.
The full Board met formally 10 times during the financial year. The TVNZ operates a remuneration system designed to ensure that Board has delegated day-to-day management to the Chief Executive employees are rewarded for individual performance, for the Officer. Policies are in place which define the individual and collective responsibilities and skills required in their jobs, benchmarked against responsibilities of the Board and management. In particular, both external and internal relativities. the Board has approved specific delegated authorities to enable management to incur expenditure and create binding obligations. At year end, membership of the Committee was comprised of Joan Withers (Chair), Roger MacDonnell and Wayne Walden. Appointment of Directors KEY GOVERNANCE STATEMENTS Shareholding Ministers make all appointments to the Board, including that of the Chairman. Appointments are for fixed terms not Occupational health and safety exceeding three years, which may be renewed. TVNZ’s health and safety policy is to promote excellence in health, safety and wellness by implementing best practice health and safety The Board comprises individuals with a wide range of experiences and systems while seeking continuous improvement. skills to ensure that all governance responsibilities are completed in a manner consistent with best possible management practice. Profiles Business continuity, insurance and risk management of each of the Directors who were serving at year end are set out on TVNZ has developed business continuity plans for use in any page 70 of this report. emergency situation facing the Company. A comprehensive crisis simulation exercise was held during the year. Board Committees The Board has two standing committees: TVNZ maintains a number of insurance policies designed to support the philosophy that, in the event of a disaster, the Company would Audit and Risk Committee not be materially affected. The Audit and Risk Committee met four times during the year. The Company has in place policies and procedures to identify and The Committee assists the Board in fulfilling its responsibilities by manage risks. Exposure to foreign exchange and interest rate risk providing recommendations, counsel and information concerning is managed in accordance with a comprehensive Board-approved its accounting and reporting responsibilities under the Companies Treasury policy, which sets limits of management authority. Act 1993 and related legislation, and evaluating risk management Derivative instruments are used by the Company to manage specific practices. business risk; they are not used for speculative purposes. Page 69 TVNZ Annual Report FY2014
Editorial independence TVNZ has in place an editorial protocol that details the duties and responsibilities of TVNZ, its Board and its executives on editorial matters. The principle of editorial independence recognises the importance of isolating control of editorial content from commercial or political influence. This principle is reflected in the Television New Zealand Act 2003.
External auditor The Auditor-General is the Company’s auditor pursuant to Section 14 of the Public Audit Act 2001. The Auditor-General has appointed Brent Penrose of Ernst & Young to act as external auditor on her behalf in the current financial year.
Legislative compliance The Company has in place a legislative compliance programme to ensure the Company’s compliance with its various statutory obligations. A bi-annual review is undertaken, the results of which are reported to the Audit and Risk Committee.
MEDIA STANDARDS The Broadcasting Act 1989 places an obligation on the Company for the broadcasting of programmes to comply with the requirements of that Act and with codes of practice approved by the Broadcasting Standards Authority. As a broadcaster TVNZ is required to receive and consider formal complaints and to have procedures for investigating them.
In addition, the news and current affairs output of the Company’s websites is subject to the jurisdiction of the Online Media Standards Authority. Page 70 TVNZ Annual Report FY2014
Directors' Prof iles
WAYNE WALDEN, CHAIRMAN (AUCKLAND) Fund and a member of the Board of Trustees of the Asia New Zealand Wayne Walden is a successful businessman with an active interest in Foundation. He is a former member of the Fulbright New Zealand youth development and environmental issues. Wayne is affiliated to board and a life member of the Parliamentary Press Gallery. Ngati Kahu of Tai Tokerau. Wayne is an experienced company director, and was previously Managing Director and Shareholder of Farmers/ ROGER MACDONNELL (AUCKLAND) Deka Ltd. He has had more than 30 years senior management Roger MacDonnell was a founding partner of Colenso BBDO and experience in the liquor, wholesale and retail trades in New Zealand. retired at the end of 2009 as Chairman and CEO and as a Director His past directorships include director of Farmlands Co-Operative of the Clemenger group in Australia. He is currently a Director of Society, director of the Westpac Bank NZ Advisory Board, Deputy the Image Centre (printing and publishing), a Director of Hourigan Chairman of Meat New Zealand, director of Mighty River Power International, Sydney, (marketing/comms recruitment), a Trustee of Limited, Chairman of Transrail and Chair of Maori Television. Wayne the Auckland Arts Festival and consults on branding and marketing. was the Founding Chairman of the Project K Youth Development He is a member of the CLIO Copywriters Hall of Fame in New York. Programme and Founder of the Guardians of The Kaipara, an organisation that is concerned with preserving and creating JULIA RAUE (AUCKLAND) awareness of the unique natural marine and landscape values of the Julia Raue is the Chief Information Officer at Air New Zealand and Kaipara Harbour and its environs. Wayne received an Officer of the has been with the airline for 15 years, holding a number of different New Zealand Order of Merit (ONZM) Honour for Services to Business IT roles. Julia has over 25 years of experience in the IT industry, and the Community in the 2007 Queen’s Birthday Honours List. involving positions in local government and telecommunications, as well as charitable organisations. Julia has overseen a number of JOAN WITHERS, DEPUTY CHAIRPERSON (AUCKLAND) world firsts in innovation within the industry, winning a number of Joan Withers has a career in media spanning 30 years which includes awards including the NZ CIO of the Year Award in 2009. Julia was also holding the Chief Executive roles at both The Radio Network and a category finalist in the Women of Influence Awards in 2013. Fairfax Media. She is a professional director and is currently Chair at Mighty River Power and is a director of the ANZ New Zealand bank. BARRIE SAUNDERS (WELLINGTON) She sits on the Advisory Board of The Treasury and is a trustee of The Barrie Saunders is the co-founder of Saunders Unsworth Limited, a Tindall Foundation, the Louise Perkins Foundation (Sweet Louise) company specialising in the management of public policy issues. He is and chairs a steering group in South Auckland which is focused on Chair of the Port CEO Group. He has been President of the Wellington helping Maori and Pacific Island students attain careers in the health Regional Chamber of Commerce, a Wellington City Mission Trustee, sector. Joan has an MBA from Auckland University, was the author of a member of the Housing New Zealand Board and North American "A Girl's Guide to Business" and was the 2009 recipient of the CAANZ Director of the New Zealand Meat Board. Prior to establishing his Media Excellence Award. business in 1990, Barrie was a radio and television journalist in New Zealand, Australia and the United Kingdom, and he edited the ALISON GERRY (QUEENSTOWN) National Business Review. Alison Gerry has over 20 years’ experience working for both corporates and for financial institutions in trading, finance and risk THERESE WALSH (WELLINGTON) roles in Sydney, Hong Kong, Tokyo and London. Alison was a Visiting Therese Walsh is the Head of New Zealand, ICC Cricket World Cup Fellow at Macquarie University in Sydney for 12 years until 2012. 2015 and also serves on the Board of New Zealand Cricket and NZX From 2007 Alison has been a professional company director and is Limited. She chairs the International Development Advisory and currently Deputy Chair of Kiwibank and holds various governance Selection Panel for the Ministry of Foreign Affairs and Trade and is a positions in the infrastructure sector. Alison has a Masters of Applied member of the Major Events Investment Panel. Previously she was Finance from Macquarie University. the Chief Operating Officer for Rugby New Zealand 2011 Limited, the company established by the NZRU and the New Zealand Government RICHARD LONG (WELLINGTON) to deliver the Rugby World Cup Tournament in 2011. She has also been Richard Long is a former long-time Political Editor and then a member of the executive team at the New Zealand Rugby Union, Editor of The Dominion newspaper. He was formerly the editors’ and held a senior role with KPMG. representative on the board of the Newspaper Publishers Association, the inaugural Chairman of the Editors’ Press Freedom Committee and a former Chairman of the New Zealand section of the Commonwealth Press Union, which campaigns for press freedom. He is presently Chairman of Trustees of the NZ France Friendship Page 71 TVNZ Annual Report FY2014
Main Locations
AUCKLAND WELLINGTON CHRISTCHURCH Registered office Sales News & Sales Television Centre Level 6 31 Dundas Street 100 Victoria Street West Prime Property Tower Christchurch 8011 Auckland 1010 86-90 Lambton Quay P O Box 1945 PO Box 3819 Wellington 6011 Christchurch 8140 Auckland 1140 PO Box 1752 Tel: 64 3 961 8500 Tel: 64 9 916 7000 Wellington 6140 Fax: 64 3 961 8555 Fax: 64 9 916 7934 Tel: 64 4 914 5198 tvnz.co.nz Fax: 64 4 914 5140 DUNEDIN News ROTORUA News & 11 Dowling Street News Current Affairs Dunedin 9016 5th Floor, Hinemoa Tower Level 5 PO Box 1070 1154 Hinemoa Street Prime Property Tower Dunedin 9054 Rotorua 3010 86-90 Lambton Quay Tel: 64 3 474 2880 PO Box 944 Wellington 6011 Fax: 64 3 474 2885 Rotorua 3040 PO Box 1910 Tel: 64 7 350 2540 Wellington 6140 Fax: 64 7 350 2543 Tel: 64 4 914 5000 Fax: 64 4 914 5043
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